Most of the prospects I meet, are very reluctant when it comes to investing in Mutual Funds or shares. Their usual answer is “Even if I get l less returns it is fine, but I want safety” Are you too in the same boat? If yes, please continue reading….
I am taking help of this recent meeting which I had with one of my friend’s dad. This gentleman is in his 70’s and has never invested in Mutual funds or Shares. According to him these are very risky investment avenues. He is a big fan of Postal Schemes and Bank Fixed Deposit’s (FD’s). I know his son for some time now, who is a good friend of mine. I had suggested him several times in the past about starting Systematic Investment Plan (SIP) in Mutual Funds. Somehow he never did it. Recently when we met, I asked him why he is not investing in SIP’s. He said his father is very conservative and that he is not in favor of it, and he will not do any investments without his father’s approval.
So with this backdrop, I asked my friend to arrange my meeting with his father. We all met at his residence about two days later in the evening. Everyone was sitting in front of me. My friend, his wife, parents and his brother. This is what happened….
After initial greetings I asked his father’s view about investing in Mutual Funds. He immediately said “Nahi re baba humko kuch maloom nahi hai iske bare mein, paisa doob gaya tou” (No no….. we don’t know anything about mutual funds, what if we lose money?) I understood the problem, the problem was lack of knowledge and understanding of the product, and hence unwillingness to invest in it. Now I could have spoken lots of things supporting my statements but I tried using a different approach. This is what I asked … Uncle, is it not true that people die on road due to accidents, some even while walking and some while driving, so is it not risky to walk or drive on road? And even when you see accidents happening why still you go out on road? He said yes accidents do happen and I am aware of this, but I am careful and keep an eye while walking and crossing the roads. I said, well that’s right uncle, because you have identified the risk, you take all the necessary precautions while walking on the road and hence it is not that risky now, yes? He agreed to this point. Then I asked his wife, aunty fire is very dangerous and yet you use it in your day to day life in your house to prepare food and light candle in the house temple, why? She said yes she is aware of it but she knows how to control the flame of the gas and so it is not that dangerous anymore. To this I said, that is exactly what my point is. Everything has an inherent risk. But if we know and understand the risk it can work in our favor. With these two explanations, they were now in the listening mode and wanted to know more.
His father asked, but Mutual Funds are private funds, what is the guarantee if they close the shops tomorrow (Now, this was a valid concern). So I asked him, if he worked in a government organization or private? He said private organization. Then, I asked him why he worked in a private organization, even when he knew that there is no job security in private sector companies? He explained how large and good the company he worked for was. He also told that he had several senior friends and relatives who were working in private sector companies. Talking to them and seeing them working for several years gave him the confidence, of joining a private sector organization. Knowing this, I then explained to him how well regulated and transparent Mutual Funds industry is and hence safe.
His next concern then was that the returns are not guaranteed in mutual funds. Again a very valid question. This time I asked him about something which he knew well. What about the bank or Post office interest rates, are they the same now as it was about 5 years back, or increasing? He said it has come down. Yes, it has come down and he knew this because he has seen this happening to his investments. Next I asked him, will the current interest rate remain same going forward in future? He said possibly no. So is it not a risk you are taking, I asked. He was speech less.
I then told him that the bank or post office FD’s guarantees the rate of interest only for the time for which it is taken. No one can say with surety what the interest rates will be 2 or 3 or 5 years down the line. Also the interest rates for PPF has changed several times in the past. It has come down from as high as 12 % per annum in the year 2000 to present interest rate of 7.80 % per annum. Knowing these facts you still continue investing in FD’s and PPF, why? He said he only knew about these two investment avenues as there is not much to understand.
The lack of awareness and understanding about Mutual funds has kept him away from trying or investing in these wonderful product. I assured him that he need not worry because I know and understand financial products and the risks associated with each of them, as this is what I have been doing for almost 16 years now. I told him that I will take all necessary steps to ensure that his son’s investments in Mutual funds are managed well and that he will make some good money in long run if he follows my guidance and advice.
Uncle was relieved, as by now he understood that I know and understand the Art and Science of managing risk associated with Mutual Funds and other investments products. That day, I left their house carrying signed cheques and application forms of his son to start investments in Mutual Funds SIP’s.
My friends, not knowing something is a “RISK”. But, when you know the risk, all you have to do is understand how it can be managed. And if you do not have enough time and energy to understand or learn it, please do not feel hesitant to take help of an expert. Just like having a family doctor is important so is having a family financial advisor.
I hope you enjoyed reading this article as much as I did writing it. For more information and knowledge on investing please keep reading my posts. Next article coming out soon…. “Good SIP, Bad SIP”.
I am taking help of this recent meeting which I had with one of my friend’s dad. This gentleman is in his 70’s and has never invested in Mutual funds or Shares. According to him these are very risky investment avenues. He is a big fan of Postal Schemes and Bank Fixed Deposit’s (FD’s). I know his son for some time now, who is a good friend of mine. I had suggested him several times in the past about starting Systematic Investment Plan (SIP) in Mutual Funds. Somehow he never did it. Recently when we met, I asked him why he is not investing in SIP’s. He said his father is very conservative and that he is not in favor of it, and he will not do any investments without his father’s approval.
So with this backdrop, I asked my friend to arrange my meeting with his father. We all met at his residence about two days later in the evening. Everyone was sitting in front of me. My friend, his wife, parents and his brother. This is what happened….
After initial greetings I asked his father’s view about investing in Mutual Funds. He immediately said “Nahi re baba humko kuch maloom nahi hai iske bare mein, paisa doob gaya tou” (No no….. we don’t know anything about mutual funds, what if we lose money?) I understood the problem, the problem was lack of knowledge and understanding of the product, and hence unwillingness to invest in it. Now I could have spoken lots of things supporting my statements but I tried using a different approach. This is what I asked … Uncle, is it not true that people die on road due to accidents, some even while walking and some while driving, so is it not risky to walk or drive on road? And even when you see accidents happening why still you go out on road? He said yes accidents do happen and I am aware of this, but I am careful and keep an eye while walking and crossing the roads. I said, well that’s right uncle, because you have identified the risk, you take all the necessary precautions while walking on the road and hence it is not that risky now, yes? He agreed to this point. Then I asked his wife, aunty fire is very dangerous and yet you use it in your day to day life in your house to prepare food and light candle in the house temple, why? She said yes she is aware of it but she knows how to control the flame of the gas and so it is not that dangerous anymore. To this I said, that is exactly what my point is. Everything has an inherent risk. But if we know and understand the risk it can work in our favor. With these two explanations, they were now in the listening mode and wanted to know more.
His father asked, but Mutual Funds are private funds, what is the guarantee if they close the shops tomorrow (Now, this was a valid concern). So I asked him, if he worked in a government organization or private? He said private organization. Then, I asked him why he worked in a private organization, even when he knew that there is no job security in private sector companies? He explained how large and good the company he worked for was. He also told that he had several senior friends and relatives who were working in private sector companies. Talking to them and seeing them working for several years gave him the confidence, of joining a private sector organization. Knowing this, I then explained to him how well regulated and transparent Mutual Funds industry is and hence safe.
His next concern then was that the returns are not guaranteed in mutual funds. Again a very valid question. This time I asked him about something which he knew well. What about the bank or Post office interest rates, are they the same now as it was about 5 years back, or increasing? He said it has come down. Yes, it has come down and he knew this because he has seen this happening to his investments. Next I asked him, will the current interest rate remain same going forward in future? He said possibly no. So is it not a risk you are taking, I asked. He was speech less.
I then told him that the bank or post office FD’s guarantees the rate of interest only for the time for which it is taken. No one can say with surety what the interest rates will be 2 or 3 or 5 years down the line. Also the interest rates for PPF has changed several times in the past. It has come down from as high as 12 % per annum in the year 2000 to present interest rate of 7.80 % per annum. Knowing these facts you still continue investing in FD’s and PPF, why? He said he only knew about these two investment avenues as there is not much to understand.
The lack of awareness and understanding about Mutual funds has kept him away from trying or investing in these wonderful product. I assured him that he need not worry because I know and understand financial products and the risks associated with each of them, as this is what I have been doing for almost 16 years now. I told him that I will take all necessary steps to ensure that his son’s investments in Mutual funds are managed well and that he will make some good money in long run if he follows my guidance and advice.
Uncle was relieved, as by now he understood that I know and understand the Art and Science of managing risk associated with Mutual Funds and other investments products. That day, I left their house carrying signed cheques and application forms of his son to start investments in Mutual Funds SIP’s.
My friends, not knowing something is a “RISK”. But, when you know the risk, all you have to do is understand how it can be managed. And if you do not have enough time and energy to understand or learn it, please do not feel hesitant to take help of an expert. Just like having a family doctor is important so is having a family financial advisor.
I hope you enjoyed reading this article as much as I did writing it. For more information and knowledge on investing please keep reading my posts. Next article coming out soon…. “Good SIP, Bad SIP”.
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