Wealth creation - Part 4 - Final

In the previous blog Prakash shared the following things with the group.

1.     Assured returns schemes/financial products have their benefits however number of such schemes has come down over last few years.

2.     Assured return schemes always do not give assured returns and sometimes even your principal amount also may be at stake.

3.      One must invest in equities if he/she is serious about wealth creation.

While the group understood the importance of equity investment, they were concerned with the fact that equity is a risky asset class. Prakash understood the discomfort of the group.

How many of you know Mutual funds and ULIPs (Unit linked insurance plans)? He asked.

All of us raised our hands. Some of them were investing in MFs and had ULIP policies. Others have read about them.

Prakash said if you don’t want to invest in equities directly, there are indirect ways as well. MFs is one way of indirect investments. You could look at ULIPs as well.

Hold on, Deepak said. I have two questions here. How will MF take care of the risks of equity investment and why are you clubbing ULIPs with it as an investment option?

I guess Prakash anticipated this concern. Prakash Continued. Depending upon the objective of the fund, MFs invest in different companies and hence your risk spreads. Second, they have fund managers who understand investments better than us by virtue of their expertise and experience.

With regards to ULIPs, IRDA (Insurance Regulatory and Development Authority) has taken some very important customer friendly measures since September 2010. If your investment horizon is more than 7 years you get three benefits. a. You get life Insurance cover; b. You get to choose fund basis your risk appetite; c. Since the minimum lock in for your premiums is 5 years, the fund managers are not under pressure to take un-necessary risks and d. You get tax benefits.

Wow Prakash. We have not thought about MFs and ULIPs this way. But tell us which MFs; ULIPs and Shares do we buy?

Deepak was wearing a cream colour shirt. Prakash appreciated the colour and said why are you not wearing a pink colour shirt like Sharad? Deepak said that it’s a personal choice.

Prakash said, precisely for the same reason, it is difficult to suggest the stock standard products to all.

It all boils down to the three things that we discussed earlier. Risk appetite; asset allocation and financial goals. And these things are different for different people.

The best person who can help you with specifics is your financial planner.

Prakash said we have discussed only paper assets and that too not entirely. He has asked us to take some interest in understanding about different asset classes and products.

He said knowing is important but once we know about them and take experts help, we must ACT.

We all dispersed with the resolve to engage an expert and most importantly act for the wealth creation journey.