Investments should be subject to investor knowledge

Investments are subject to market risk but before that investments are subject to investors knowledge. There are wide range of financial products to choose varying from Fixed deposits, Mutual funds, Bonds, Shares, ETF etc. A typical investor is not aware of all such products and keep his investments limited to few products. It's not wrong to limit your investments to few investment products. In fact its good to invest only in those products which you understand and should be like that. You shouldn't sail in an unknown territory, if you do so, there are high chances that you will fall. Here, in this post i will share my views on keeping investments simple.

When i see around me, there are people with different levels of financial literacy. I can broadly divide them into below categories and you can decide yourself, under which category you fall.

1. Persons who are highly financial literate and are already doing their investments in a discipline manner. These type of people know "Where to invest and How to invest". Very few people fall under this category. They know when to re-balance and when to increase or decrease their investments. They are not professionals but have good knowledge.
       
2. There are people who know "Where to invest" and have limited knowledge of financial products. They generally start the investment (may be after procrastination) and doesn't review their portfolio and hope all is well. "Jada dimag nahi lagana, jaisa chal raha h chalne do".
      
3. There is another category of people who want to invest but "Don't know where to invest". Many salaried and self employed people fall under this category. They don't know which investment product is better for them. They don't have knowledge about investments products and often fall prey to wrong investment products.
      
4. There are many persons who can't distinguish between savings and investments. They "Don't know Why to invest". Many young earners can relate to this.
      

Needs and modes of investment varies person to person. For someone, stock market is best suited and for someone it may not. For my father investment in Fixed Deposit and PPF are the best and risk free, for me they are risk free but not the best. Similarly, for some persons NPS is worst and for some it's "Bhudaape ki latthi".

Views about any investment product vary from person to person. Every person is person and have different knowledge about investment products. What is best suited for me, may be not be best suited for you. Biggest reason for this i can see is the knowledge and the comfort level.

If you don't understand the product than don't invest in that product. Keep it simple. If you don't understand shares and mutual funds than don't invest in them. If you are comfortable with fixed deposits than invest in them. If think that you can earn money in share market than go for shares. Don't invest in a product just because your friend or someone known is doing it. Don'y buy shares only because Rakesh Jhunjhunwala is buying. Take your time to understand a product and than invest. Don't buy a product because someone is stating that blah blah product has given 24% returns in last 5 years and you will become a crorepati if you invest this and this amount monthly or yearly.

• Do your own research, take advice from your knowledgeable and trusted friends and relatives.
     
• Neither hurry nor procrastinate your investment. Understanding of a product is very important.
     
• Keep your investments simple and invest only in those products which you are comfortable with.
     
• Invest according to your risk appetite. If you are not comfortable in taking risk than simply avoid it.
     
• Don't invest only for returns or tax saving.
     
• Always seek to improve your knowledge and try new things.
     

I am sure you were aware of many of the above said things and understand that you are different from others. You need to remind yourselves of above rules and simplify your investments.

Happy Investing!!!