Monthly Archives: October 2016

Thursday trivia- Choosing an Investment Product? Choose an Expert instead!

investment advisor


Just last year, Jay got the promotion which he had been waiting for since a long time.  Entire family was extremely happy with his promotion as Jay could now buy a car for his family which was a dream come true for him.  None of the three generations before had bought a car which added an extreme element of pride in him.  Suddenly, in no time, this pride turned around into a huge problem of selection of a car which needed to be solved.  As he looked around his immediate family, there was no help while a few friends did suggest but since this was a big decision, Jay thought it would be best to invest his own time and energy into the same.  Though even this decision was short lived as there were too many cars that were fitting into his budget.

Resulting in a lot of confusion, Jay decided to individually going to each car company and checking the car himself.  Sales people were extremely persuasive everywhere while talking good about their own product and talking down on other company’s products.  This added to a lot more irritation because now it looked a lot harder and he didn’t want to waste his money and time invested in the same.  Fortunately, an old school friend of Jay met him at a restaurant who was an expert and had passion for cars.  Needless to say, rest is history and dream was fulfilled with ease.

Relying on a person who is both expert in his field and has passion for the same, makes those specific decisions easy. If such an example is correct for buying a car, then it certainly makes more sense to rely on an expert while making a choice in buying investments products.  Just like a car, even an investment product will have its own positives and negatives.  As the clutter of information increases on which product to rely on when investing or going the solo way of directly investing in the company through a broker, so does the requirement to rely on an expert to declutter that information.  Technology has been a great facilitator towards connect people and pieces of information which were not easily accessible before and in times to come, it will become better.

So the question that emerges from this is, will this information being increasingly available through technology solves our need of investments? Or rather lets say, would Jay have relied solely on some basic comparisons of cars on a website and book a car for him?  You could say, yes in case the product to be bought was a mobile phone or a laptop, but a car is a dream come true for for him.  Similarly, in buying an investment product also, if they are just bought for a tax saving purpose then it can be bought directly, but when these investment products are purchased to realise a dream in the future (can be children’s marriage, retirement, etc.), it is sensible to have an expert who can handhold till the time that dream is realised.

An investment product is usually made up of many components such as equity (buying shares of companies) or debt (where loans and advances are given to a company) or both distributed as per the person who manages that product.  Ideally, it is the job of your advisor (expert) to sit with these fund managers and understand the psychology and reasons of buying shares or giving loans to companies in the making of that investment product. Second question comes, how do you assess whether he is really an expert or does he have passion for his job.  The answer is simple, just ask him as many questions as possible, it’s the best way to know someone very well. Rather than googling, every possible answer, asking your expert will bring more clarity and comfort in the journey of investments. Infact, the experts in any field usually encourages a lot of questions and answers them till the time everyone is satisfied with it.

We have been habituated to a world which is changing by the hour. We seek advise in most of our decisions everyday, not only to confirm whether the decision is correct or not but also to seek whether we are in the right direction. Similarly, if Jay buys a car today and next month a new car comes with lesser price and better features. Would Jay still be really happy with his decision? What if, someone who has nothing to do with any car company had told Jay to wait for 1 more month? Would that have added any value to Jay’s life?

If your answer is Yes, then why don’t we just do the same for our own hard earned money? Let our money work for us through an expert who will not only provide the right advise but will not be biased towards any particular company.

Would it not save a great deal of our time, by simply taking an advise? Again, if your answer is Yes, then let’s choose an Expert and not merely an investment product.


Image Courtesy : Buzzle

Thursday Trivia – Physical Gold v/s Paper Gold

‘All that glitters is not gold’ is one of the most fundamental phrases which we use when we are super excited by something which is not worth the excitement.  Time and again, the word Gold has been used interchangeably in many situations showing it’s prime importance.  Historically, Indians have displayed an explainable association with gold, at one point in time, India had so much gold reserves that it was called ‘The Golden Sparrow’.

Physical gold held in bars, biscuits or coins, have always been considered an extremely safe investment because of we can touch, feel and see it.  Also, once we buy it, we are not habituated to look at the price of gold daily.  It maybe once in 6 months or once a year when we see the price and don’t really mind because wherever the price goes, the physical gold can always be accessed.

With the advent of technology, investors have an option of buying gold in dematerialised or paper form.  Paper gold advances the transparency of prices and neglects the risk of storage and theft or misappropriation.  But since it is not held in physical form, there is always a tendency to check it’s price more often than otherwise.  It is just our mindset towards the paper form which makes us react to such changes.  Plus, people become more vulnerable to outside news and start to connect it’s impact on prices of gold which may not have any connection.

For example, when shares were not traded in dematerialised form, investors who did not regularly visit stock exchange were not really worried about the prices.  They were more concerned about the performance of the company over the long run.  But since shares were dematerialised and televisions started to propagate about prices each day, such an exposure lead to massive wealth destruction to such an extent that stock market has been looked down upon in a big way.

Similarly, if a person merely sees paper gold as an alternate to holding physical gold but retains the same level of composure as if he has bought a gold bar, there will not be any impact due to minor price changes. Paper gold provides multiple layers of security as the instrument will be registered with investor, seller, fund house and regulator.  At any point, if the investor loses the documents, he can always place a request with his seller, fund house or regulator for the same which can be accessed through following a procedure which may differ.  Whereas in physical form, once the gold is lost, it is highly unlikely that it can be recovered and the procedure to file the complaint with police is also tedious and tiresome.  So keeping our emotions aside, paper gold might just make more sense!

Paper gold can be purchased through four ways in India :

  1. Gold Equity Traded Funds (ETFs)

    These are mutual funds which are passively managed by simply investing in standard gold bullion. Investors can purchase these by opening a demat account with a broker registered with Bombay Stock Exchange or National Stock Exchange.

  2. Gold Mutual Funds

    These mutual funds are also called fund of funds (FoFs) that invest in either their own Gold ETFs or a foreign gold fund. Investors also have a facility to purchase these funds at a systematic investment planning (SIP), so that they can accumulate by buying little over along period of time.

3. E-Gold-

It is a product launched by the National Spot Exchange Limited wherein an investor can purchase gold in electronic form in denominations as small as 1 gram and can also be converted to physical gold.

4. Sovereign Gold Bonds (SGB)-

SGBs are government securities denominated in grams of gold. The bond is issued by Reserve Bank in tranches on behalf of Government of India and bear an interest rate of 2.75%.  The quantity of gold for which investor pays is protected, since he receives the market price at the time of premature or complete redemption.  SGBs are traded on both the exchanges between the price range of Rs. 3,000/- to Rs. 3,200/-

When it comes to beating the market volatility and paying regular interest, SGB beats all other forms of paper gold.  Even the change in price can be offset by interest component for the investor.  Therefore, it is absolutely advisable to go forth with SGBs for investing in paper gold.

With changing times, forms of holding will change but the inherent nature of gold will always remain the same.  Therefore, it will be very important for an investor to carefully assess his lifestyle and buy the same.  For example, for people staying on rent or moving between cities due to job requirements, it will be more helpful to hold paper gold though for a person who has stays with family and has his work nearby will show a higher inclination towards physical gold.  But the basic principle of staying invested for a long term to create wealth will hold true in both the cases.