Sunday, May 26, 2013

Kitna milega?

No matter how much investors would like to know, for many financial products they should not be asking how much returns they will get...

Some time ago Maruti used to run an advertisement campaign where the person asks “kitna deti hai” (how much (mileage) does it give?).

The same question—in a  different context-- is asked by an investor too—how much return will I get or kitna milega?

While advisors try to answer it in their own way, we believe that there are no definite answers to the question if the investor intends to invest in stocks or mutual funds. Advisors idea more often than not is to quote a number that is likeliest to close the sale while not being a commitment.

Investors have to realize that equity does not carry a definitive return matrix. If the investor wants a definitive answer as to the %age return that he can expect, then we believe that the fault lies with him. If he does however expect a particular figure before writing out a cheque for investment, then he should restrict his investments to products that carry an enforceable commitment in black and white. This means bank fixed deposits, postal savings; PPF and so on.

Asking for an estimate or an informal promise on returns from any product that is inherently linked to a market-- be it stocks or anything else-- is inviting trouble. Either you won't get an answer or you'll get a dishonest answer, simply because no real answer exists. In fact, if a salesman is willing to give such an answer, then that itself indicates a problem.

If you are planning to invest in a mutual fund, or any other market-linked financial product then the process that is followed and the earlier track record is actually the best you have-- no matter how hard is it to get used to the idea.