In the last post I exhorted against using insurance as an investment vehicle, at least not when returns is the primary motive because there are many better investment options in the market. Those better investment options form the topic of this blog post. But we will get to that later. First, let me take it from where we left it last.

Epilogue

So those of you who are still unconvinced with my insurance versus investment argument, here is a pertinent example from the life of A Successful Investor (I know! You have questions about this person’s ambiguous identity… but don’t worry because you will understand by the end of this blog that his identity is the least of matters to trouble yourself with…there are larger issues at hand like the right investment decision!)

Now, our guy wasn’t so wise earlier due to the lack of proper research or guidance and so he invested in an endowment policy for 20 years with a yearly premium of INR 24,100 and an assured sum of INR 500,000 on maturity. And then one day, enlightenment dawned when after a lot of careful study, he realized that if he bought himself a term plan with a yearly premium of INR 1,614 he would still be insured for the same amount and yet save a whopping INR 22, 486. So, like a savvy money manager, he surrendered his endowment policy in its seventh year and the surrender value of INR 1,35,163, he invested in a mutual fund where the rate of return was 12% on an average. The INR 22,486 that he saved on the premiums was also invested in the same fund. Well, the amazing thing was that at the end of 20 years the endowment policy would have paid him INR 11,00,000 inclusive of the much talked about bonus while on the other hand his mutual fund investment yielded INR 12 ,95,678 . Simple math will tell you that the difference was INR 1,95,678.

The protagonist took this decision after 7 years into the endowment plan and yet drove home with profits. You can just imagine the impact if you start right.

Maybe if I ended the last sentence with an exclamation mark, it would drive home the point …but no I did not do so – and this is advice for life – because good decisions are borne out of careful and in-depth analysis and not by buying in to things at face value. An exclamation mark might convince you I am right and a full stop will make you ponder over what was said and decide for yourself the veracity of my comments.

For illustration of above calculations, please feel free to contact.

Prologue

Now since I have told you what is not a good investment option we could begin exploring the ones that are. That is part one but then there is part two which is strategically more important than part one. You see, everyone can tell you what are the best investment options, but no one will tell you what should be your investment option.

One way of doing it is by deciphering the psyche of A Successful Investor and with the insight that you gain, design your own game plan. Since you are a valued audience to this attempted knowledge sharing piece of writing, let me be gracious to do the investigation of A Successful Investor’s decision making and you can work on your investment plan.

The Psyche of A Successful Investor

Disclaimer: The following is not a psychologically tested; brain mapped or medically proven deduction but a careful observation of years of studying investing styles.

A Successful Investor, the protagonist of our tale, is like any man walking on the street or a woman working in the kitchen or a qualified professional sitting in a chauffeur driven car but, and please pay attention, he has one distinguishing quality. He is clear-headed. Yes dear readers this is the game changer…this simple yet difficult to have quality makes him/her A Successful Investor.

He never started with the big bucks but worked his way up and yet no matter which class he invested in, his decision was always based on four basic factors.

Risk

Liquidity

Time period

Taxation

So if you can define the answers to the above mentioned then you are almost A Successful Investor but dear interested reader there is still some ground to cover. Investment is a vast field of fertile options, out of which you need to pick a piece of land that is suitable for your seeds. Too poetic to understand?! Well let me explain…

YOUR Piece of Fertile Land

There are various options for investments, the broad ones being listed here…

1. Fixed Deposit (FD)

Risk: Low Liquidity: Low

A fixed deposit yields a high interest (as high as 10%) though rates may differ bank to bank and in tougher economic times, they may also be slashed. But if you are looking for low risk, fixed returns and are comfortable with waiting till the FD matures, then this is your pick.

2. Public Provident Fund (PPF)

Risk: Low Liquidity: Low

With an interest rate of 8.8%, the Public Provident Fund Scheme is supported by the Government of India making it a safe fixed income security and the edge it has over a Fixed Deposit is that the interest is tax-free! So there you go…!!

3. Stock Market

Risk: High Liquidity: High

Now quite a few starry-eyed investors believe the stock market to be the Mecca of investment. Well, if the decision is a studied and calculated step, then the blessings that such an investment showers can truly be wonderful. But, one can never be sure of unanticipated market turns and upheavals that are bound to impact rates which make it a high risk option but the flip side is that this allows for greater returns as well.

So if you have the patience to see your stocks walk the mountainous contours of the index, an appetite for risk and the knack to judge the correct timing to buy and sell, then enroll yourself for this one exciting ride!

4. Mutual Funds

Risk: Medium Liquidity: Medium

A mutual fund is a pooling of funds from a huge number of investors. The inventiveness of this tool allows for professional money management and a diversified investment. And that is the power of many.

Post Script:

Gold always glitters and real estate is the Raja of investments – so if you wish to invest in either, please go ahead because the above mentioned statement is as good as fact unless something major is to happen that will alter the way we live.

Hope this was helpful…if not, please post a comment and I sure will get back to you!

So let’s start planting seeds because the land is fertile!