Right investment decision needs guidance

By Rajesh Choudhury

This is the story of a middle class family, comprising three brothers, in Kolkata. The family’s total monthly income was Rs 4,500 in 1979. It is interesting to note that in the year 1979, an operation or administrative officer of a private organisation would get salary of around Rs 250-275 per month in Kolkata. I will take their story to explain the insights of saving and investment. The story is of 1980 when gold was Rs 1,300/10 gm and petrol was at Rs 7 per litre.
During those days people hardly knew about available Financial Instruments to grow the surplus money. Only a few of them must have managed well to grow their wealth even.
Sanjib Das, the youngest of all brothers and very smart too, managed his wealth. He had inclinations towards money management. At 32 (1980), Sanjib used to work with a large accounting firm and learnt the basic idea of managing money. He attended a workshop and the turning point of his personal finance health happened after meeting a wealth manager.
Rajib Das, the eldest brother in the family was very conservative and never wanted to learn beyond his understanding regarding money management. In fact, among all the brothers he was doing well in his career, earning high, leading a good lifestyle as per 1980’s standard. In other words, he was regarded and respected among peers and friends.
Well, after 30 years both of them are retired now. On a Personal Finance survey, the following facts revealed about Sanjib:
He has real estate, stocks, bonds, mutual funds, fixed deposits, gold, savings account, tax plan and health insurance. With these, he achieved the following goal with the help of his wealth manager’s advice — a bungalow worth around Rs 2 crore, an apartment in Kolkata worth Rs 50 lakh, Rs 1-crore retirement corpus (meeting current monthly expenses of Rs 40,000). He goes to vacation every six months.
When we tried to find out from Rajib’s wealth after 30 years, the following points revealed, he put his money in the following instruments: fixed deposits (40 per cent), savings account (30 per cent), life insurance (20 per cent), an apartment in Guwahati. His retirement savings and pension are not sufficient to support him.
Once during a meeting in 1990’s, Rajib’s brother (Sanjib) informed that housing was developing and replacing the concept of houses to apartments and flats to his elder brother. So he insisted that Rajib buy shares of HDFC Housing as advised by his wealth manager.
However his brother did not invest rather lent Rs 5,000. The Value of Rs 5,000 is Rs 50 lakh in 2017. He even purchased two plots in Guwahati for investment as advised in 1992 spending Rs 2 lakh. The current market price is Rs 2 crore.
Proper financial advice could change one’s fortune and even generations.
Sanjib shared, “Understanding the difference between saving and investment is very vital for a long-term money management.”
As rightly said saving only guards the capital and investment can grow the capital converting to wealth.
There are five main differences of savings and investments like meaning, goal, interest, inflation and education.
The objective of investment is asset creation. Wealth creation is a long-term process. Example: Owning a property, child’s ‘Education plan, making Rs 2 crore in 20 years. etc are investment and require expert advice.
However, interest in saving is very less. It ranges from 3.5-4 per cent. Hence cannot grow the capital. Saving cannot grow beating inflation. Investment product always gives you high return with calculated risk. But advices are costly in this class of product. You can beat inflation with investment product. For instance, rated bonds have both liquidity and high return and capital is also protected.
Sanjib wanted to tell his elder brother that inflation, simple interest, compound interest, internal rate of return are all very important in respect of financial plan and money management. They are dynamic in nature. Regular review and management are important. Self evaluation of wealth is not advisable. We can only guard but cannot grow our wealth in the long run.
Life insurance product is a risk protection product with a component of saving and will never fetch wealth in the long run. Maximum Indian households are having such product today.
Investment instruments are complex products like medicine for critical illness. Self medication or advices from non-expert is very risky in the long run. Buying financial products from the distributers, agents, etc is like buying medicine from the counter of Pharmacy without prescription.
Like a family doctor, we also need a personal financial or wealth manager who can give services on wealth, tax consultancy, legal financial advices, risk and protection.

(The author is a certified wealth manager. You can contact him at rajchw15@gmail.com)

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