Increase in assets alone won't make you wealthy!

Most people think that they will be financially happy if they have immense wealth. Their focus is only on enhancing their wealth and to invest in maximum return generating options. One of the common questions raised by investors is 'Which is the best performing stock or mutual fund or any other investment?'

It is a myth that increasing asset alone or fastest growing investment will let us enjoy our wealth.

Firstly, let us discuss the pitfalls in owning fastest growing asset. We all know that between walking, cycle, car, and plane, fastest moving vehicle is plane. However if we want to visit a grocery store around the corner, plane won't help. Similarly if we invest in a bond which is yielding high return but has 10 year lock-in period it won't be of use if we have to fund our daughter's higher education in 3 years time. To go to corner grocery store, we can either walk or at the most ride on a cycle.

Suresh and Rajni were doing well in their career. They had good salary and simple life style. Because of this they could save lot of money. On hearing from their friends, how they have made money by investing in real estate, Suresh and Rajni also purchased two houses over and above the house they lived in. They had spent about Rs 75 lakh on both the houses. In 3 years time, the value of it had appreciated to Rs 1.10 crore. They were happy. However when the time came to fund their son's medical education, they were in a fix. They needed Rs 35 lakh.  Since all their investments were in real estate, except few small FD and balance in Savings Bank they were constrained for liquidity. They finally had to sell one of the real estate which fetched them Rs 50 lakh to fund son's education. On the gains they had to pay capital gains tax. Imagine owning assets worth Rs 1.10 crore but not having liquidity of Rs 35 lakh.

Therefore do not always rush for fastest growing investment. Look at your requirement and then choose investment.

Second most important thing is to ensure that all the documents related to financial instrument are stored properly. So many times we find people who have several insurance policies but premiums are not paid on time. At times these policies lapse.

Arun Mehta had taken health Insurance plan of Rs 5 lakh for himself and his family. However he was lethargic in paying premium. Invariably he would miss the due date. His policy had lapsed twice in the past. However last year's case was different. As usual he had missed his paying premium on due date and to his misfortune, his son met with an accident. Family had to shell out entire expenses by selling other investments.

This is not stray incidence. There are instances where people do not bank their dividend or interest warrants before the expiry dates. They then have to send them to financial institutions by whom it was issued for revalidation.  Sometimes they forget to inform financial institutions about change of their bank details.

Ajay Shah had invested in capital gains tax saving bond 3 years ago. Last year he had changed his bank but forgot to inform the bond issuing financial institution about the same. When the redeemed amount was sent by ECS, it was returned by his old bank. By the time he realized his mistake and wrote to financial institution and received his funds in new bank account 3 months had passed. For 3 months large sum of money did not yield any returns.

To enjoy your wealth, just focusing on increasing assets is not sufficient. Focus on creating assets which will be useful to you in meeting your goals and ensure you keep the documentation updated.

-Gaurav Mashruwala

The author is a Certified Financial Planner. He may be reached at gmashruwala@gmail.com