Are you stung by a financial bug??


We all dream to be financially stress free, have a larger than life retirement, leave a fortune for our heirs etc. These are some of our major life goals and can be achieved with right investment approach and knowledge. However the problem occurs when these investments go for a toss and one needs to compromise or give up on achieving their future goals. Most of our investments are either emotionally driven or instinct based. Even today when one wants to make an investment they will go to their father’s friend’s cousin for a tip, invest in the same and will realise after 10 years that the rate of return was as good as keeping the money in a savings bank account. When it comes to purchasing a life insurance policy or mediclaim one will go to their family insurance agent who will sell the policy that gives him a higher commission than the policy which is actually required for the client and all this without any calculations or need analysis. These instruments are the bugs which sting us now but one will realise it much later.


We at in our practice of enlightening the general public about financial literacy will now take a step ahead and enlighten you about these financial bugs which may erode your investments and one should rather stay away or eliminate them from their investments.

Your money is lying in the savings account but not being invested: it is a very good habit to have a contingency fund incase of any loss of income. However most of us keep their entire earning in the savings a/c where the rate of return is too low. This will keep your money safe and liquid but with very little growth. Thus it is essential to invest your income in a better investment instrument which will give you high rate of return to achieve your financial goals in time.

Your insurance cover is higher than you actually require: the amount of life insurance cover required should not be decided by your insurance agent but should to be calculated as per your need analysis i.e. the sum of projected cash flow required by the dependents, corpus for important goals and liabilities if any. Also if your investments add up to the total cover calculated you may not require life insurance.   One may think that higher the insurance cover the more secured one’s dependents will be, but one does not realise that higher the cover higher will be the premium, instead of paying high premium the same can be invested in a better instrument for a better future goal. Life insurance is not taken for self but for his/her dependents incase of any unfortunate demise of the bread earner. Thus one with no dependents does not require life insurance.

Your life insurance cover is not enough for your dependents: life insurance need analysis gives you an approx amount of cover you require. One is satisfied with 10 policies bought from their agent but do not bother to find whether the total sum assured is even close to their actual cover required. You may not realise now as you are happy with your 10 plus policies but the total sum assured may be too low for your dependents to survive after you or the entire sum assured is washed off in paying your liabilities. One may not be able to purchase more policies as they are already paying high premiums for their current policies, thus for life cover a term insurance policy should be considered as it is pure insurance with very low premium.

Thus we always suggest a life insurance policy should be purchased keeping your need analysis in mind. Also one should not fall for complicated insurance cum investment policies with high premium and go for a pure insurance cover with low premium and have a separate investment portfolio.

Save yourself before you fall in a debt trap: the psychological concept on instant gratification is the start of building a debt trap for yourself. You see some new expensive gadget in the market but currently you are not able to purchase by cash due to tight budget and so you will not think once before swiping your credit card. This will make you a proud owner of the “expensive gadget” but with a liability and incase you forget or are not able to pay your credit card bill on time you have just increased your liability. We at Fpguru have already spoken about Loans- the good, the bad & the ugly. A good loan will help you build an asset but a bad or the ugly one will erode your money in no time and you may not be able to get out of the debt trap. Thus it is very essential to think twice before taking a loan and why is it required.

Lower the risk, lower will be the returns: Most of us are risk averse and invest only in risk free instruments. Since risk and returns go hand in hand the lower the risk, lower will be your returns. Thus manageable risks should be taken to get high returns to build a good corpus for your goals. Risk profiling is required for everyone, as you never know your current financial status may allow you a take a moderate risk and this will let your investment grow at a very high rate.

Long term goals also require attention: monitoring and reviewing your goals is something which gets easily forgotten. However it is essential to review your investments especially when the goals are long term. Long term goals can be 10, 15 or 20 years from now, investments for long term needs to be reviewed regularly and if required re-allocation should also be done. Rebalancing your portfolio is a must, incase you have invested in equity for a particular goal, your corpus needs to be shifted to debt few years before achieving the goals. This will help you keep your money safe and lower the risk when approaching the goal.

There is no crystal ball to tell you the future of your investment and so making an investment mistake is very certain. However a financial advisor with his experience will help you make the right investment, purchase life insurance policy which is best for your dependents and can also save you from falling for a bad investment instrument or an expensive insurance policy with the help of his knowledge for the same.


By Namrata Shah.

The writer is working with as a Financial planner.

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