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Jun 23, 2012, 01.31 PM IST | Source: CNBC-TV18

Informed Investor: Create wealth and manage it!

CNBC-TV18's strives to create an Informed Investor by empowering them with knowledge under the Investor Education Act and help them make the correct financial decisions.

CNBC-TV18's strives to create an Informed Investor by empowering them with knowledge under the Investor Education Act and help them make the correct financial decisions.

The show Informed Investor brings together people from various walks of life and demystifies the essence of investments and the myth of the market. The sector-specific forums will help to bring together the communities that can engage directly with the best financial minds in the country.

This special episode of Informed Investor brings together members of the legal community and tries to find out what their investment requirements are.

Teaming up with CNBC-TV18 in this endeavor is S Naren, CIO Equity, ICICI Prudential and Ambreesh Baliga COO at Way2Wealth.

When CNBC-TV18 decided to engage with the members of the legal community and find out what the investment requirements are, it thought the best way to go about it would be to perhaps find out what their current investment practices are…what are they doing?

So CNBC-TV18 reporters and researchers scanned the length and breadth of the country. They engaged with lawyers from various law firms from across age groups and from various brackets of income and levels of experience. They had a lot of research that they found out and some of it is quite startling. About 40% of lawyers that we had surveyed said that they preferred investing in bank FDs.

Only 6% of the lawyers we surveyed who said they would be interested in perhaps equity or even mutual funds . 26% of the lawyers we surveyed still preferred the safety of holding onto solid gold or silver.

There were only 11% who said they were willing to invest in gold ETFs. A whopping 46% of those surveyed said that their annual investment was under Rs 1 lakh, which perhaps just about qualifies as their tax saving requirements. There were only 13% of the people who said that they invested between Rs 3-5 lakhs a year. It is perhaps is indicative of the lack of proactive approach towards wealth creation.

As they say, 'wealth cannot be earned; it can only be created' and CNBC-TV18 is here to help you do just that: Create wealth and manage it!

Below is an edited transcript of Naren and Baliga’s discussion. Also watch the attached videos.

Q: You have had time to study the findings of the survey. Are you at all surprised by the lack of participation in the market? Is it just the volatility in the markets that's keeping the retail investor away or is it perhaps a lack of awareness about the options that are there at their disposal?

Naren: As is typical of all financial products, there are period when greed comes to a particular asset class and people are very passionately involved in it. Then there are other periods of time when fear comes to asset class and people forget about the asset class.

I have seen in my career of 20 years, there has been periods like 1997-98, 2001-2003 and increasingly now where I find that people have just forgotten about equities as an asset class. They only think about other asset classes, although the experience of investors shows that the people who invested in the 80s, 1997-98, 2001-2003, they were the people who made all the money and others actually didn’t make money.

If you go back and see the period of mania in equities was 1992, 1994, 2000 and 2007. These were the four years where I believe even lawyers would have entered equity markets saying, this is the way to make money. In other years they would have said equity doesn’t look to be a place to make money. So, my sad experience has been that investors get drawn in at the wrong time because they think it should be invested like the weather. Whereas if you want to make money in markets like equities, the whole process is that you have to invest irrespective of the weather. You can’t say the weather is bad today, so I won’t invest or if the weather is very good today and I will invest.

Unfortunately, investors choose to invest in equities through the weather. What we have done in the mutual fund is that, we have started to create products like SIPs and systematic transfer plans, which basically force people to invest irrespective of the weather, but that works for sometime.

Now, people ask me: "For five years, I have not made money in SIP , so what do I do now?" But the global experience is that this is not the time to worry about SIP. These are the time to increase your SIPs. This seems to be a global problem, not just an India problem. What we have done is: We have added debt to product. We have added gold ETFs to our products. Our regulators helped us to add all these products. We have hybrid products, which invest in multiple of two or three asset classes. So, when we do all these things, our goal is to get people in all the time and that’s the hope for us that we want them to invest irrespective of the weather. But I can still tell you people invest based on the weather.

Q: It's investment discipline that needs to be followed. What Naren is saying is absolutely right...that a lot of people are lacking discipline. Do you think this lack of participation in equities is also because of lot of confusion between investment and trading?

Baliga: Absolutely. People are not really looking at equities or various other classes. From the statistics, this is not only specific to the legal community. If you look across the various Indian investors or I would say savers, our saving rate is one of the highest in the world and the amount of money, which comes in to equities, is minuscule.

One of the reasons is people are not really aware and they don’t know how one can go about investing in equities or other asset classes and when it comes to investing in equities again there is confusion whether you should be investing or whether you should be trading. There again the weather comes to play, what Naren was talking of, when you have the markets doing extremely well, everyone turns to trading because that’s the way to make quick money and once you get stuck on the way down, you become an investor. This is the story of most of the investors around.

Abidi: The takeaway from our expert advice is - if you want your money to work for you, you have to work at investing it right.

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