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According to research conducted by CNBC-TV18 across various cities with police officers, of various carders and ranks, it was found that 71% of the police officers were not at all comfortable investing in the stock markets.
While 23% were somewhat comfortable and this is something, which is affecting their risk profile is the fact that most of them were single-income families, which means that our target groups were the only earning members of that family having three or more dependents.
It was also found that half of those who were surveyed preferred to invest in bank FDs and about a quarter of them opted for investments in insurance products as well. So, Informed investor not only focused on just their financial fitness, but some tips on physical fitness were also provided.
Here are some investment strategies.
Q: It is not surprising that the participation in the equity markets is so low, but I am surprised that out of all the communities that we meet with and interacted so far this is one community, which does not even invest in mutual funds or any investments of that matter. For a single-income family I realised that they wouldn't want to invest in equities per se. How can equities or mutual funds incentivise for people with this kind of a risk profile?
Anand: It is about budgeting. You have an income, you have your expenses, you have EMIs, you should buy insurance and after that is really what you have is savings. Most Indians - they put their money away in fixed deposits. Yes, capital is absolutely safe; no bank has ever gone bust in India. However, savings and fixed deposit is getting killed by two factors the return is taxable and it is not even beating inflation.
In that context, this is not necessarily to this group, but to the larger audience as well that it does make sense to move some money away from fixed deposits into slightly more riskier assets. There is a myth that mutual funds are for the rich. You can actually buy a mutual fund for as little as Rs 1,000 today. So, you can start investing even Rs 1,000 per month over a period of time and that will in a sense start to build a corpus, which if not anything else will at least help you start beating inflation.
Q: You have dealt with a lot of people with the similar risk profile. What's the one common investment mistake that you have seen and how can it be rectified?
Roongta: When you look at an investor profile, you will have people with all kind of preferences which they have basically been inherited with - there are some things which come through generations into their culture.
So, we do hear people saying that equities, my family has never invested, so I am not going to venture out into it. My forefathers told me equity is not for people like me. So, what is important is that once a person is living in a particular century if I may put so, he needs to understand that there are certain things which he needs to do which are relevant to present times.
In India, we have had situations wherein there were a lot of scams if I may put that word, 'a lot' but things are changing now. Regulatory things are turning around, we are seeing stringent norms. There needs to be confidence that needs to be coming in at this point keeping in mind that regulatory environment has changed.
Coming back to this specific group - we know that there are a large number of people who are earning less than Rs 5 lakh - that's the data that we have. A majority of them are less than 29 years of age. So, average age of the group that we see is about 30 years of age. So, if age is to your side and if you are comfortable understanding what kind of products are available today in the industry, listen to it with an open mind, accept it with an open mind.
If they can allocate some funds out of their total corpus, it does work for them. Another reason why it is even more necessary if I may put so, we are seeing that the large numbers have an annual income of less than Rs 5 lakh.
Secondly, if you are going to invest into a product which does not even beat inflation then you are really going to be struggling very hard to meet your goals. So, with that less corpus that you have, you need your money to work harder.
Unless you do that, it is going to be very difficult to achieve your targets. So, one portion of your investments does need to go into areas which are high risk and high reward, but as long as you have restricted it to a small portion of your total corpus, it should not be a cause of concern.
Abidi: It doesn't matter the amount of investment that you are making but a percentage of that needs to go into assets that will work for you, give you much higher returns than other assets would. So, it may not be a very large percentage but a percentage for sure.
Rajiv raised a very interesting point, he said invest in the century that you live in. There is a myth about bank fixed deposits (FD) being safe when they are not even safeguarding the value of your capital.
Anand: Absolutely, I think bank FD is saving and you have to differentiate between saving and investing. Yes, in a bank FD, your capital is safe but the return that is pretty much worthless as you go into time. The other is, ofcourse, taxes and there is nothing much that we can do about taxes. Every rupee of income that we have, we have to pay taxes on and I think we must look at investment as a return on post tax basis. What are the most efficient tools that are available such that I am able to mitigate or minimize the tax that I am paying? I am already paying a fairly large amount of my salary as tax, I certainly don't want to pay too much more on the interest or investment income that I am making and there are numerous tools there.
Section 80C is available which gives you tax breaks. Use those instruments, public provident fund, which gives you tax free income. Utilize those to the maximum and in that sense at least your post tax income is beginning to go up. It's a subsidy which the government is giving back some of the taxation that is taken from you. Utilize all that and then start to use some of the market instruments that are available.
Abidi: So, like they say debt and taxes are the only certainty so I suppose one of the certainties atleast we can try and minimize and till we arrest inflation, let's try and beat that.
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