The Finance Minister was reportedly in Bombay on February 9 to talk to the financial crowd in Mumbai about all things related to investment.
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Some snippets from the press reports on his visit, and some comments from me:
Still, invest in equity shares
- Retail investors need to buy shares: Agreed. But who will protect them from some of the same people who were in the audience who, at any opportunity, will happily mug the hapless retail investor
- The Rajiv Gandhi Equity Savings Scheme for "first time investors" will be made more attractive: Firstly, please pass a law banning the use of the word "scheme" whether in RGESS or in the mutual fund "schemes". Unless, the word "scheme" is intentionally being retained to warn retail investors that the financial geniuses are indeed out to con us with another "scheme" of theirs. "Scheme" suggests a trick, a deception. As an articulate lawyer, the Finance Minister should know that and it is possible that he may have used this word in the past to defend one of his clients as in "My Lord, my client was the victim of an elaborate scheme..." Secondly, giving a tax break to people and then inviting them to get mugged and tricked out of their wealth by investing in a "scheme" is not a winning proposition. Finally, please can we stop naming all these "schemes" after Rajiv Gandhi or anyone else? Unless we are trying to prove what Rajiv Gandhi said: money given for a cause never reaches that cause and gets lost along the way. Because that is what happened to most people's investments: they got hijacked for fees along the way!
- KYC norms should be easier: anything which reduces paperwork and makes life easier is great. But far better than a Know Your Customer, should be a KYFI (Know Your Financial Intermediary). It would be great if, with each visiting card of a representative from a KYFI there would be a book attached which lists all the bad stuff these Financial Intermediaries have been a part of. They should list all the IPOs they have acted as a lead manager or part of the "syndicate" (oops, another negative word which conjures up images of bad guys sitting around a table planning what 'scheme" to whack you with!) and state the price at time of the IPO and the average share price for the past 12 months and compute the returns as compared to a BSE 200 Index. It would be even better if SEBI made that list and took away the licenses of the Financial Intermediaries (and their "scheming" affiliates to do any business in India). Sadly, I don't see a relevant KYFI rule coming into place. The people in the audience hearing the FM were most likely from the Financial Intermediaries and I doubt they were about to lose their licenses. From a SEBI perspective, KYFI means show me a large balance sheet and a high net worth. That is typical of lazy regulation trends globally: large is better.
You wake up every morning knowing that your local municipal Corporator or your local MLA, MLC, and MP have done little to make you happy. Yet, you wake up and try and make the best of your day. Similarly, recognise that the framework within which you need to invest your savings is sub-standard. The financial intermediaries are powerful and there is another "scheme" around the next corner to find an elegant way to transfer your savings into their profits.
But, even when life is tough, there are the silver linings.
And there are facts.
It is a fact that investing in the basket that makes up the BSE 30 Index stocks in 1979 would have given you a return of over 190 times in 33 years. That is an average compounded rate of return of 17% per annum. Sure there were some years when the stock markets (as measured by the BSE 30 Index) lost -70% and some years when the markets gained +90%, but - if you can stomach those freaky roller-coaster rides - investing in stocks is a must for every Indian.
It is a fact that the economy of India is growing. And with economic growth, there is generally a growth in profits. And profit growth, over time, leads to higher share prices - provided you can trust the founding shareholders of the company! As you can see there are many moving parts:
Don't lose hope: keep the image of the terrible conditions we live in and remember that we still live on and move on! ☺
- How much will the economy grow?
- How much will profits grow?
- How much of those profits will be reflected in the official accounts of the company and how much will be siphoned off by the cheating founder shareholders into their very private pockets?
- How are share prices likely to react?
Just as you side-step the daily challenges and realities of life, there are ways to sidestep many of the pitfalls of investing:
So, don't give up in disgust. Over the past 23 years, there have been many opportunities to make a sensible rate of return on your savings without taking undue risk. Equitymaster, PersonalFN, and Quantum Mutual Fund are all platforms and entities that I have helped set up as steady, long term solutions and alternatives in an uncertain investment environment. And there must be other financial intermediaries that you can - and should - trust.
- The up and down movement of share prices: don't invest a lot in shares, but do invest some of your savings in equity shares - how much to invest in shares, in fixed deposits, in property, or in gold is what you can decipher on your own with some simple tools or you can build a more detailed financial plan
- Do not be a speculator, be an investor: think long term, thing rationally. Don't fall for the get-rich-quick "schemes" that dot the financial landscape, just as potholes dot the path of your daily journey! If you wish to buy the "index" or basket of stocks and not worry about trying to figure out which company or business is better than buying an ETF is a good start. But recognise that there could be many companies in the Index run by founder shareholders who may not be fair to you - the siphoning I referred to earlier may be prevalent; if that troubles you then find a mutual fund which worries about these things and uses "integrity" as a screening tool. Look at what Quantum Mutual Fund does.
- If you have the time, the interest, and the inclination to pick your own shares, there is the independent research from Equitymaster which allows you access to views on many companies. What you do with that independent research is up to you. You are the decision-maker or the "fund manager" of your own portfolio.
- Don't invest into stock markets at one shot, but invest over time. Given that the Indian economy is not growing particularly rapidly and that profitability of Indian companies over the next one year may not increase a lot, there may not be a sustained rise in share prices over the next 12 months. In fact, with a budget around the corner, a general election not too far away, and the persistent fears of a global economic problem, there are enough opportunities for the stock market to hit an "air pocket" and see a slide. It is best to span your investments into the stock markets over the next 12 to 18 months.
The Finance Minister is right: you should invest in equities. But do so sensibly.
Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)
||Quantum Long Term Equity Fund
||Quantum Gold Fund
(NSE symbol: QGOLDHALF)
|Quantum Liquid Fund
|An investment for the future and an opportunity to profit from the long term economic growth in India
||A hedge against a global financial crisis and an "insurance" for your portfolio
||Cash in hand for any emergency uses but should get better returns than a savings account in a bank
||Keep aside money to meet your expenses for 6 months to 2 years |
Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"