Hello Readers!!

Recently I came across a group of friends who were having a long discussion on a very important topic, that was “which asset classes and geographies one must choose and on what basis that would deliver superior returns in the future”!

Well, this was an interesting topic and at the same time a very crucial topic, because the phase that the market went in the last 12 months was never predicted, and left investors all confused about the trends of the market. The last 12 months were speculating for the market- equities crashed and then rose like a phoenix, gold has dome more this year than what it did maybe a decade before, and interest rate trend at its all-time low. And then the last hit was shown by the real estate that suddenly started showing increasing activity in the last few months after it was aided by some government benefits.

So basically, after seeing so many uncertain situations in the market, it has become difficult for investors to decide what strategy they must follow while investing so that they can receive a good benefit from their investment.

Well, as per the view of an expert, focusing more on some specific factors before you start investing, helps you get a more clear idea of which asset class to pick, how much to invest, for how much time to invest, and what returns the investor should expect for the future.

Here, below are some of those specific factors that investors should seek to understand and answer, before evaluating returns.

Must Consider Purpose Of Investing!

Well, this is the most important aspect, to know the purpose of your investment and how important that purpose is for you. Investing is basically done to create wealth for a specific goal, and when you have your objective linked to your goal, it forces you to think thrice before taking any drastic step towards your investment.

So basically, when you discuss different asset classes to choose from for your investment, consider your purpose of investment. Understand the goal behind that purpose, how important that goal is for you, and how important this goal is with your overall priorities?

Calculate Your Time Horizon!

Every goal, be it becoming an engineer or creating a corpus of Rs 1 crore, requires a stratified time period. While fixing a time period for your investment, consider how many years away your goal is? How flexible is this time horizon, and can it be shifted by 1-2 years? Because some of your goals can adjust with 1-2 years shift in their time period but some of your goals cannot adjust with that. E.g., a graduation fee payment cannot wait, while a second home purchase can be postponed.

Take Calculated Risk!

How many of you know that while investing minimizing the risk is more important than maximizing returns? Well, most of the investors realize this fact, only when they actually experience it. But it is very important to analyze the kind of risk associated with the asset class you are deciding to pick for your investment. Some important risks that need to be considered are:

• Capital-loss: How high is the risk of permanent capital loss? Over what timeframe? How will that impact your financials?
• Volatility: How much will your capital gyrate in terms of value and over what timeframe? How will you react to it?
• Liquidity: How easily you can come out of that particular asset that you are considering for your investment? Does it consist of any pre-mature withdrawal or early withdrawal penalty?
• Concentration – What % of your overall portfolio does this particular asset and asset class account for? Do you have adequate diversification within and across asset classes? 

Analyzing risk is necessary because each investor holds a different risk profile. It is their risk capacity only that decides what will be their reaction once their investment starts showing volatility, especially in cases of capital-loss, temporary or permanent. Not only this, but an investor's risk capacity helps him plan an appropriate asset allocation strategy.

Source Of Advice Must Be Professional!

Generally, people have a habit of taking advice from their relatives when they are stuck in a situation or when something is new for them, but they must understand that their relative’s advice is not good for their finances and investment, until and unless their relative is not a professional advisor, mark me, advisor and not investor. One must not follow the herd quality of sheep when it comes to their investment and finances, because it is not necessary that the financial assets that gave good returns to your relative would also prove a good investment for you. You have a different goal, risk capacity from your relative then how the good asset class for both can be the same.

Even if it is pertinent, well-researched advice, be sure that the person giving the information should have an interest in your financial well-being and nothing else.

So, what we conclude from the above discussion is that investment is not all about returns, but it is more than that, then why only consider how much return does an asset class generate, before planning to invest in it! Investment is all about how much risk do you take, what is strategy that you follow for allocating your assets, for how much period you are going to invest, all these factors together decide the future of your investment, so do consider these when plan to invest!

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For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).