Direct Investment or Regular Investment

These days we get so many advertisements related to investments especially the Insurance, Mutual Funds and the Share Market. In that too there is more focus on do it yourself strategy. But is it appropriate for us to do it ourselves? Do we have enough knowledge about the product we are choosing? Do we have enough time to keep a tap on it? Do we know which investment options should be chosen for what and with what horizon? Do we understand if our Risk appetite and Risk in the investment option are in line with each other?

Before looking for the answers let us first understand that what is the exact difference between the two Investment strategies that we are talking about i.e. Direct and Regular Investment. Direct Investment is the investment that we would do without consulting the financial advisor. This investment strategy is usually based on online studies, word of mouth, to save the commission paid to the advisor, and more. Regular Investment is the investment that we are doing after consulting the financial advisor. This investment strategy is followed by people who understand that the specialist would get them some extra return and it will also save the time they spend on studying and understanding of the different financial options; in that time, they can do something more meaningful like giving time to family or earn more from their work and more.

Let’s talk something on the investment options. Starting from Insurance, do we all know how many types of insurance products are there? And do we know what are the returns we get on insurance products? Let’s say we save the commission paid to the advisor and took an insurance product by online study or from suggestion of some friend/ sales person of some company. Did we calculated that how much money in total are we really paying in the tenure of the policy; how much return are we getting, is the return more than the inflation i.e. the intrinsic value of our money is increasing, decreasing or is it staying constant?; Is the insurance amount sufficient for our dependants in case of mis happening?; and most important do we really need that particular product?

Regarding Share Market most of us do not know how to do research on the company, read its balance sheet, understand the micro and macroeconomics that had/ is or can affect the working of that company that we are putting our money in. Most of the time we work on the news we hear on TV or from some friend who had made money in some company and so on. We want to earn money really fast but forget that in share market you can make money only if we are not greedy and have the capacity to hold ourselves back instead of acting on the emotions. “TIP” is one of the most common word we can hear form the new traders in the market. They simply work on the word of mouth, without checking the fundamentals of the company and the future scope. Which means they are playing on the edge. It is true that after a point no one can go up the ladder without investing in shares, but that is only if they hire people who study and do it well or they start studying the companies themselves and start investing in them. Would it be a good option for them to divert their concentration from their job/ business to researching about the companies they want to invest in? And It is also true that people have gone bankrupt within nights by investing in shares, this is because of greed and improper research on the shares they are investing. These are basically those who invest much more than their appetite. Don’t you think we all need to give these things a thought?

Mutual Funds the most common investment option that we all have heard about. Every where we listen/ read “Mutual Fund Sahi Hai”, but do we really know what mutual fund is? Do we really follow the disclaimer saying, “Mutual Funds are subjected to market risk, please read the offer document carefully before investing.”? We just read the part and say that Mutual Funds are risky, why don’t we follow the second part saying us to read the offer document. And when we are so not into reading the offer document then why do we do not want to consult the advisor who knows about the Mutual Fund Scheme we are investing in or if he can tell you which product would be better for you as per your requirements (time horizon, risk appetite, wealth creation, tax saver, etc.). Yes, we will earn some amount more if we invest directly instead of investing under the Advisor’s ARN (Regular Investment). The real question is, “Is it the right thing to do?”. We saved the commission amount, but are we earning more or equal to what Advisor would have helped to earn, is our Scheme choices in line with our requirements?

This bring a question that if we really want to invest only by direct means but also need some consultancy, why don’t we just consult the advisor and give him the consulting fees? Why do we want to save on that? Don’t we earn on the service we provide? Then why is there a problem if the advisor is charging us for his/ her services? Still the question arises that is the advisor right for us, is the advisor thinking for our benefit or for his own benefits? This is something we will know only after talking to him/ her, understand that why some investment that he suggests is in line with our needs/ requirements. Also, there are some exams that are needed to be passed. Those who pass are provided with a ARN number which can be checked online on www.amfiindia.com, jist by chexking the validity of their ARN no you cam check if the person is legally allowed to give the advice on ur finances or not. thus the authenticity of the advisor can be checked. The experience can also be taken into consideration (in addition to the knowledge about the products).

There are always pros and cons of everything, so does these have. In Direct Investment, we earn some more percent is a plus point. The negative points would be that our choice may be correct or may not be if done without proper studying or consultation, everything is self-service and no updates on some good investments options. With Regular Investments, loosing on that percent is drawback only if the scheme we had chosen is same or better than the one suggested by the advisor. Positives would be that we can always consult the advisor regarding those investments or if some more is to be done, updates on good investments options, services, and the most important thing is that if the advisor we are consulting is also a financial consultant instead of just a Mutual Fund Advisor/ Insurance Advisor/ Stock Broker then he/ she may help us with management of our income tax file and suggest us on how to straighten up our messed up investments. Unnecessary diversification should always be avoided, which our FINANCIAL ADVISOR may help us with.

Thus, from my point of view we can chose any of the above-mentioned investment strategy, but we should go for the consultancy. Either pay the consultancy fees and decide on whether to accept the suggestions that the consultant had given us, or we can go with the regular investment option and let the consultant earn for us and for himself too, along with the services that we may need regarding our investments/ financials.

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