Arm yourself with info before investing

Recently, all newspapers carried a survey from Thomson Reuters Foundation, which surmised that India was considered the most dangerous country in the world for women, even more than countries like Syria, Somalia, and Afghanistan, where atrocities against women have been well documented. It was unfathomable that India should be above all these countries (which have such archaic laws and religious beliefs) on violence to women. I wondered who are these women who feel this way and was surprised to find that, firstly, only 548 women had been interviewed. Secondly, the women interviewed were supposedly experts on women’s issues and thirdly, only 43 were actually based in India. So this ranking was given to India by women based on their perception of these countries (probably based on what they read in media) and in all likelihood, they had never visited any of countries.

I see this issue of using half-baked information routinely in financial decision making too. Many retail investors are known to invest into stocks based on tips from colleagues, friends and neighbours. These days, they also follow well known large investors, as well as star fund managers and try to ape their holdings. What they don’t realise is that the large investors or fund managers are well diversified and hence can take exposure to smaller and medium-sized stocks. Also can the entry and exit by these star investors be tracked by a retail investor?

Then there are mutual fund transaction platforms, which have categories like “grow rich”, “for young Indians”, “better than FD” etc. The home page highlights the last five year returns. If one clicks further, the five-year return and the suggested investing period is shown. Some important details, which are mandated by the regulator, are missing like a comparison with the benchmark. Further, the site also does not mention the taxation on the funds or the risks associated. Only when one scrolls to the bottom, does one see the list of funds and the exit load.

So in the “better than FD”- the suggested investing period is one to three years, without any lock-in and the funds suggested are short-term funds with duration of two to three years and some with G-sec exposure. Incidentally, the last one year returns on the funds recommended have been negative. Imagine an investor who has been investing in fixed deposits, who would have invested last year with a one-year timeframe, thinking better returns, no lock-in versus FD, would have ended up with losses. All because he did not have enough information. Both the Robo advisor and the customer are to blame in this case. The Robo advisor, did not give all the relevant details to the consumer, it also misled the investor. Half-baked information along with little financial knowledge and understanding inevitably leads to bad financial decisions.

The writer is Director Finsafe India and Co Founder, Womantra


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*Photo credit: Investment, Thinkstock

Source: Article written by Mrin Agarwal in DNA Money

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