7 Questions to ask before investing
7 Questions to ask before investing
Returns, returns, returns! Most of us only ask this when we talk of any investment idea. We all know money is hard to earn, but harder to make it grow on its own. Aren’t we always on the lookout for investment avenues that can provide us with the best possible deal on our money? However, when it comes to evaluating any proposal or idea, most of us seldom question beyond returns and maybe a few other things. Shouldn’t we understand the entire dynamics of investing and the product /asset under consideration before making this important financial decision?
The most important question to consider before making any investment is, "Why am I investing?", "What is my investment objective?". There may be several reasons - you want to meet a life goal, or you just want the money to grow and create wealth, or you need the money to be protected or whether you are looking for temporary cash-flow management. The treatment and approach to all these objectives differ which will dramatically impact your choice of the asset class and products.
Defining your investment horizon is another important element. Keeping everything aside, you may also choose the asset class /product, based on your investment horizon if you are flexible with returns and risk profile. In general, the longer your investment time frame, the more risk you can accept in your investment portfolio because you have more time to recover from a mistake. An interesting point to note is that if your investment horizon is very long, you may invest in assets that are not very liquid like for eg., real estate, PPF, etc. For shorter investment horizons, investing in liquid instruments is very essential. One important question to also ask here is - what are the chances I may need it earlier? If needed, will you have to exit/sell these investments?. This again will impact your decision-making.
The next question you need to ask is how much risk can you take? There is another way to look at this, how much risk you ought to take to meet your target figure, in case of a life goal, e.g., retirement. At times, you may have to invest in an asset class with higher risk to achieve the goal. In such a case, you may have options like increasing your investment horizon and/or your planned savings or reduce on your target amount. A balancing act will need to be done for all these. All asset classes and products come with different types and levels of risk and with better clarity on your ideal risk, you can now decide on the same. In absence of a defined target amount, your investments decisions or portfolio composition should purely be based on your risk profile. Further, the type of risks also differs, the major ones being risk to capital, credit risk, interest rate risk, liquidity risk, reinvestment risk and market risk.
Another question to ask is whether you are familiar with the asset /product - “do I have the knowledge, proper understanding and experience of this product?”. Aspects like nature of the product, risks, returns, process for buying /investing /redemption /payout, ongoing management, tax treatment, liquidity, etc along with the name, quality, credit profile, etc. of the concerned issuer /financial institution, is important to know. The institution’s financial standing and credit profile become very important if the product is a debt instrument. In the case of fund houses, the mutual funds, the house quality and pedigree play an important role. Operational processes and ongoing management of the asset is also something you want to be familiar with. Risks, in terms of capital risk and the volatility of the returns, should be known to you. Returns are something we will explore in detail next. If you feel that the product is too complex, not transparent or something you cannot understand, better ignore the same than regret it later.
After the above questions are answered, comes the question that we usually ask first - “What returns will I get?”. Interestingly, I think that every asset class and product will give you different types of returns. The major types would be – capital gains, interest rate, dividends, rental income, etc. Each of these returns has different characteristics. In case the asset class or product is something new, you should first ask “how will the returns get generated?”. By understanding this aspect of the asset/product, a lot more can be understood of the potential risks and opportunities. It will also help you assess if any claim made is practical or if it is shady. Further, while considering returns, the volatility of returns is also an important element. While considering returns, one should look at post-tax, real returns which are returns after taxation and net of the retail inflation rate. Surprisingly, you may realise that your traditional investments may even be giving you negative returns!
Asset allocation is an important principle or cornerstone of any investment portfolio. It is said that your asset allocation must match your risk profile and should be diversified. By asset allocation we mean the proportion of your investments allocated across different asset classes like equities, debt and physical assets like gold, real estate, etc. Diversification is the concept that says that you should have a different asset class and even at multiple underlying holdings to reduce risks. The reason is that different asset classes have different cycles. A concentrated investment too carries many risks. Before making an investment decision, “how will it fit in your overall portfolio, asset allocation and diversification?” should be answered.
Lastly, if you do not have the requisite knowledge, understanding or experience of the asset /product, better ask someone who is an expert. Do not ask your family members or friends first as they may be just like you and their opinion would have been shaped by their personal experience, good or bad. A trusted expert - either a financial advisor or financial products' distributor can be best placed to answer all your questions, including the ones asked here. A good expert, who has an understanding of you, your needs, and your risk profile, will help better select the right asset class and the product for you.
The investing process is simple but often not easy. If you are new to all this, till the time you get experienced and knowledgeable, a lot of precious time would have gone to waste. However, irrespective of your knowledge /experience level today and if you are short on time, inclination or do not wish to put in the required efforts, we suggest having an expert to help you out. But do not think that as an investor it absolves you of your responsibilities. As an investor, it is also your responsibility to get educated and ask questions to your satisfaction so that there are no misunderstandings or conflicts later. Having an expert guiding you would not only save you time but would help you make smart financial decisions and avoid costly mistakes, both necessary for your financial future.
NJ E-wealth
Managing Personal Financial Risks
Managing Personal Financial Risks
Whatever we do has some element of risk to it. It can be different and different magnitudes. They also come with different probabilities or chances of an unwelcome event happening. If the risks are too low and/or cost too little, we tend to ignore them and not worry about it. However, if the chances are high and/or the costs associated are high, we should be considering options for managing the same.
Types of risk:
As said, there are different types of risks with things we do. Let us explore the ones which are the important ones we worry about and/or are financial in nature.
One risk we face all the time is the personal risk which can take the form of health risks, safety risks, resulting in bodily harm, diseases, disability and death. This is what we all worried about especially now. Not only such events cause emotional distress and personal loss, but they may also result in huge financial costs and loss.
Financial loss can be due to many reasons, loss in business, physical damage/theft to property, valuables, home, etc. Most commonly, it can be due to bad investment decisions or investment strategy. For professionals, it can also arise due to professional liabilities.
The loss of income or inability to grow your income is one risk that everyone faces in life. In an age with automation and new skills and job requirements popping up, the challenge remains to stay relevant and upgrade yourself, even if you are in business or a profession.
Just like the income risk, we also face the risk of expenses. Although we do have some control over our expenses, they can quickly rise without us even realising it. Changes in your lifestyle, family composition, life events can quickly change your budgets, not to mention any unfortunate events leading to regular medical /treatment expenses.
The biggest financial risk we have is unseen and constant in nature. Inflation or the decrease in the value of money with time is the challenge we all face. Unless, we do not gain a return above inflation, after adjusting for tax, we are only reducing our wealth. This understanding is important for all investors.
This is something we are seeing in recent years. The interest rates offered on traditional and government schemes have been on a downtrend. This has left a lot of investors, especially in old age, worrying.
The flexibility to any asset or investment to quickly turn into cash easily, without incurring high costs, is what liquidity is all about. For eg., investments in mutual funds or liquid /blue-chip stocks are much more liquid than investments in say government saving schemes or physical gold or real estate.
Credit risk broadly means the risk to your capital. Especially when talking about debt instruments, the credit risk is big, and we have credit ratings being published to help us give some indication of the financial standing of the concerned companies /institutions.
Just last year we saw the equity markets see a sharp contraction after the Covid-19 pandemic spread. We can consider such broad-based market corrections as market risks or ‘systematic risks’ in finance parlance. They can happen from time to time, either due to some financial /political crisis or events like wars, climate, etc.
Opposite to market risk is a specific or unsystematic risk where the risk is concentrated on a particular industry or company, etc. These risks are easy to manage through diversification or with quality financial decisions.
Say you have a product that pays you 6% and will mature in a year. Here there is a risk since on maturity, there is no guarantee that you will get similar returns if you want to reinvest. After one year, the interest rates may have well fallen below even 6%. This reinvestment risk is common in products with fixed maturities /debt instruments.
Most of the risks involve financial consequences and as such can be evaluated. There are two elements to risk which need our due consideration – first, the probability of the event and second, the impact it may have upon our financial situation. However, none of this should be given more weight than required in our decision-making. E.g., if you are overweight the risks of losing some capital in financial markets, you will always avoid equity investments, which would not be a wise thing to do. Not investing in equities in life is a much greater risk which many of us fail to realise.
We also need to be always aware of the extent of a given risk to decide whether to take it on. This is true for every personal risk which we discussed above. We not only need to worry about the probability and the outcomes of risky events, but we also need to weigh them against the benefits of taking on the risk. The reason why this becomes important is that more risky undertakings, involving high-cost outcomes and/or high probability will come at higher costs too. If the compensation is also low but comes at higher costs, then too, a decision on whether taking a risk is more sensible or not is important to decide.
Based on our risk evaluation, our choice can be to accept the risk and do nothing else or try to avoid the risk by reducing the probability or potential losses or share /transfer the risk to someone else by getting insurance where possible. Buying adequate Insurance is the most popular strategy to protect against personal risks especially the risk of physical harm /death or financial loss. Insurance works because an insurer can determine the mathematical probability of a risk occurring and the financial risk at stake. With many years of statistics on such events, the insurers can determine the amount of premium necessary to provide benefits to ‘insure’ against any given risk. One can buy insurance to minimise financial loss due to accident, natural disaster, legal liability, illness, disability, and even death. Money from many people is pooled to pay for losses incurred by a few.
When it comes to financial risks, the most important strategies would be to ‘diversify’, have a proper asset allocation strategy and have professional management /expert guidance in decision-making. The idea is that your portfolio, asset allocation should be in line with your risk profile and the choice of the asset classes and products is proper in alignment with your risk profile. When planning financial goals /objectives, one further needs to consider the risks of inflation, the risk to your income /expenses and investments. Experts can help investors to evaluate these risks and make appropriate investments to assure that they will achieve their goals after factoring in these risks.
Managing risk, especially financial risk is very crucial for our well-being. As discussed, there are various ways of managing risks. It is important to identify risks that you face in life and quantify the costs of the same. This is an important first step. Identifying the options of managing that risk and the costs associated with it comes next. Choosing the right approach, the strategy and finally, the right product, if it comes to insurance, is very crucial. We would recommend that you sit with your insurance advisor to clear the entire picture. As an investor, risk management should be considered an important element that you need to learn, understand and manage.
NJ E-wealth
The Basic Principles of Insurance
The Basic Principles of Insurance
Every legal relationship is based on certain unstated principles and responsibilities, both moral, behavioural and factual. Insurance too in essence is a financial contract between parties and represented in the form of a policy. It, too, is subject to certain Principles which forms an important part of the relationship. These underlying principles are often not known to the public and may be seen as academic to a few. However, looking at the importance of insurance in our lives and our exposure /dependence on them, it does become necessary that we familiarise ourselves with such principles. In this article, we will talk about the basic principles underlying insurance contracts.
The principle of utmost good faith states that both the parties, the insurer and the insured, must disclose all material facts before the policy inception. While all contracts ought to be executed in good faith, insurance contracts, being intangible, are held to an even higher standard and require the ‘utmost’ of this quality between the parties. Each party here relies upon the disclosures of the other and has a reasonable expectation that the other party is not attempting to conceal or mislead and is disclosing in good faith.
Let us understand this better. As you know, most of the material facts relating to health, personal & family history, habits are known only to the proposer. The insurer trusts that the proposer disclose these facts and even though medical reports can help, some conditions cannot be detected by the medical examination, e.g., diabetes, high BP or any history. Thus, these factors that may affect the life expectancy of the insured person would be considered as material information. As such, any non-disclosure of material facts would put the insurer and the even community of policyholders at a disadvantage. Similarly, it is also the duty of the insurer to disclose all terms and conditions, policy wordings to the proposer. In short, every party is under a duty to reveal all material information. For the proposer, it influences the buying decision and for the insurer, it helps decide the pricing /premium required to cover the risk or if the risk is to be taken at all.
What if there is a breach of this principle? The insurer's liability gets void (i.e. legally revoked or cancelled) if any facts, about the subject matter of insurance, are either omitted, hidden, falsified, distorted or presented in a wrong manner by the insured. E.g., suppose there is the death of a person due to a heart attack and any history of medication was not disclosed, then the insurer may reject the claim.
The principle of insurance interest requires that a person or entity should have an ‘insurable interest’ in the risk being insured such that when a damage /loss is caused, it will result in a financial loss or hardship to the person/entity. Thus, a person having insurable interest only would take out an insurance policy protecting the person, item, or event in question. Different types of insurance policies require insurable interest to be present at the time of initiation of contact and/or at the time of occurrence of the event.
This principle is an essential requirement, and it makes the person/entity taking insurance to be seen as legal and valid. People not subject to financial loss do not have an insurable interest. If there is no insurable interest, the contract would look like a gambling contract and thus deemed illegal & therefore null & void. This is the reason why life insurance policies allow only immediate family members to be appointed as the Beneficial Nominees. Other examples being employers on an employee, creditor on the debtor, owner on an asset/property, etc.
The principle of indemnity requires that the financial compensation is only to the extent deemed sufficient to place the insured in the same financial position after a loss as he enjoyed immediately before the loss occurred. It prevents the insured from recovering more than the amount of his financial loss. It is not desired that the proposer /insured profit out of an event. In other words, the insured shall get neither more nor less than the actual amount of loss sustained. If this restriction is not there, the instances of events may increase and people may even intentionally cause damage for profits. As in the case of Insurable Interest, the principle of Indemnity also relies heavily on the financial evaluation of the loss, especially in the case of loss to property. This, of course, is always subject to the limit of the sum insured and to the policy terms. However, in the case of life and disablement, it is not possible to be precise in terms of money.
As per this principle, once the insured is paid for the losses due to damage to his insured property, then the ownership right of such property shifts to the insurer. So if any asset /property is fully damaged and once you get compensation from the insurance company for the same, then the insurer will get the ownership of the item. They can then sell off the remains to recover their dues by that process. You can’t benefit from the remains of that item as you have been already compensated. Further, this principle also gives the right to insurers to legally pursue any third parties at fault or who caused any damage/loss to the subject matter of insurance.
This principle applies when the loss is the result of two or more causes. The insurance company will find the nearest or the closest cause of loss/ damage. If the proximate cause is the one that is covered under insurance, then the insurer must pay compensation. If it is not a cause insured against, then no payment will be made by the insured. This principle does not apply to life insurance as whatever may be the cause of death, the insurer may be required to pay it, subject to the exclusions /terms of the policy.
The principle of Loss Minimisation says that the owner has the duty and the obligation to take necessary steps to minimise the loss of the insured property. The insured person should take all necessary steps to control and reduce the losses, if possible. The principle does not allow the owner to be irresponsible or negligent just because the subject matter is insured.
Union Budget 2021-22: Key Highlights
Loan
The purpose of making any investment is to generate additional income and build wealth to meet personal and financial goals over a period of time. And this requires a sustained discipline of following and investment cycle.
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Term loan is a borrowing that is paid back in EMIs (Equated Monthly Instalment). Here, the loan value depends on the market value of the securities on a given date. LAS-Term loan is a great choice when there is an immediate requirement for funds.

Insta Loan is a LAS-Term Loan as well, but the difference is that the loan amount of up to 2 Lakhs can be credited to the customer’s account within an hour of completion of loan formalities. That helps in meeting any urgent fund requirements.

The idea of “going shopping” has fundamentally changed over the years. Increasingly customers are shopping online and looking for faster deliveries of products and services at their doorsteps. And they seek easy and convenient EMI options when buying these products such as mobile handsets, laptops, furniture etc. In the physical and online marketspace, No Cost EMIs are very common, that add to the customers' purchasing power, enabling them to aspire High Value and better quality products and services.

NJ Capital offers LAS-Consumer Loan through NJ EMI Store. NJ EMI Store is an E-store that looks like an E-retail website. The only difference is that all the products and services on the NJ EMI Store are on No Cost (or Low Cost) EMIs.

One principal difference between the LAS-Consumer Loan of NJ Capital and the No Cost EMIs that are available from the other financiers is that there are no advance instalments to be paid. Also, for most products, no margin is required. This allows buying products of higher specifications, quality and value if so the customer desires.

LAS-Consumer Loans is also more beneficial compared to the EMIs on Credit Cards, that block the credit limit of the card (and that cannot be used for something else).

LAS-Consumer Loans has no processing charges, no foreclosure charges and nominal documentation fee.

Once the customer has taken LAS-Term Loan or Insta Loan or LAS-Consumer Loan, and as they keep on paying their installments, part of the pledged limit starts becoming available each month as the outstanding principal reduces. As the name suggests, Top-up loan is a facility that allows the customer to Top Up (i.e. “borrow again”) against the limit that becomes available as each month passes and the EMIs are paid.

To get a LAS-Term Loan, Insta Loan, LAS-Consumer Loan or LAS-Top Up Loan, the customers need to log into their E wealth account and under the “Loans” tab choose the desired type of loan, and follow the easy steps that ensue.

Fund Manager INTERVIEW
FUND MANAGER INTERVIEW
Mr. Taher Badshah
Chief Investment Officer - Equities, Invesco Mutual Fund
Mr. Taher has over 24 years’ of experience in the Indian equity markets. In his role as Chief Investment Officer – Equities, he is responsible for the equity management function at the firm. He joins Invesco - India from Motilal Oswal Asset Management where he was the Head of Equities, responsible for leading the equity investment team.
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Kotak Deepak Amrutlal (ARN-127784)
AMFI REGISTERED MUTUAL FUND DISTRIBUTOR

Deepak A Kotak
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"We have taken due care and caution in compilation of this E Newsletter. The information has been obtained from various reliable sources. However it does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions of the results obtained from the use of such information. Investors should seek proper financial advise regarding the appropriateness of investing in any of the schemes stated, discussed or recommended in this newsletter and should realise that the statements regarding future prospects may or may not realise. Mutual fund investments are subject to market risks. Please read the offer document carefully before investing. Past performance is for indicative purpose only and is not necessarily a guide to the future performance."

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