m2 c7 investments prs

Estimated read time: 1:20

Summary

In a comprehensive discussion on investments, Pasha Sina explores various facets of financial literacy focused on managing risk and maximizing returns. The session began by emphasizing the necessity of saving with a purpose and proceeded to dissect the core fundamentals of investing, including the identification of risks, strategic investment options, and the significance of understanding risk-return relationships. The influential investment philosophy of Warren Buffet was highlighted, stressing the importance of knowing the 'why' and 'what' behind every investment. The discussion also delves into the idea of financial education as a tool to mitigate risk and encourages adopting disciplined investment practices like SIPs, while addressing the psychological biases that could influence investment decisions.

Highlights

The session emphasizes not keeping saved money idle but investing it for a purpose. 🏦
Important investment fundamentals include understanding your risk tolerance and investment goals. 🎯
Warren Buffet's philosophy underlines knowing the 'why' and 'what' of investments. 🤔
Investments should be seen as deferred consumption and managed wisely. 💰
Various risks such as inflation, liquidity, and credit risks were explained in detail. 🎢

Key Takeaways

Understanding the purpose of saving and investing is crucial to financial success. 💡
Investment is not just about returns; knowing your risk and managing it is essential. 🎯
Financial education is a powerful tool in minimizing investment risks. 📚
Higher risk can lead to higher returns, but understanding the risk is key. 🔄
Systematic Investment Plans (SIPs) can be a disciplined way to build wealth. 💸

Overview

The presentation begins with the critical premise of utilizing saved money constructively rather than keeping it idle, setting the stage for a rich discussion on the essentials of investing. By dissecting several aspects such as risk identification and matching investments to personal goals, the discussion steeps in the wisdom of both traditional and modern financial principles.

Warren Buffet's investment strategy, revolving around a profound understanding of one’s investment motives, is deeply explored as a guiding framework. The necessity of literacy in finance to adeptly manage and interpret risks as well as returns is repeatedly emphasized. Along the way, the intricate relationship between risk and return unfolds, advocating the balance of expectations with a realistic understanding of market dynamics.

Systematic Investment Plans (SIPs) are highlighted as a practical approach to mitigate market volatility and ensure disciplined investing. The presenter implores on the importance of investor behavior, urging awareness of biases and psychological influences that may skew investment decisions, irrespective of market conditions. With a robust push for disciplined and informed investing, the session concludes with actionable insights into achieving financial growth.

Chapters

00:00 - 00:30: Introduction to Financial Literacy In this chapter, the focus is on introducing the concept of financial literacy. The speaker, Pasha Sina, welcomes everyone to the third chapter, following previous discussions on managing income, expenditure, and saving. The primary theme of this chapter is to guide on how to wisely use saved money rather than leaving it idle, emphasizing the importance of investing saved funds for meaningful purposes.
00:30 - 01:00: Introduction to Investment In this introductory chapter on investment, the focus is on setting the stage for understanding various aspects of investing. It begins by defining what investment means and then outlines the key topics that will be covered in the session. These topics include understanding risk, the fundamentals of investment, different investment options available, understanding returns, factors affecting returns, and investment strategies. Additionally, it mentions Warren Buffet as a notable figure in the realm of value investing.
01:00 - 05:00: Understanding Risk in Investment In 'Understanding Risk in Investment', the chapter emphasizes the importance of knowing the purpose behind an investment. It highlights Warren Buffet's advice that investors should understand their reasons for investing, instead of avoiding investment altogether. This serves as a caution to ensure clarity and purpose prior to committing to any investment to manage and understand the associated risks.
05:00 - 09:00: Types of Investment Risks The chapter titled 'Types of Investment Risks' likely covers various risks associated with investment decisions, emphasizing understanding the reasons and goals behind investment choices. It may discuss the importance of knowing 'why' and 'for what' purposes investments are made, preparing investors to make informed decisions. Specific types of risks might be mentioned or elaborated on to provide a comprehensive overview of investment challenges.
09:00 - 12:00: Understanding Investment Fundamentals The chapter titled 'Understanding Investment Fundamentals' emphasizes the importance of having a clear purpose for investing. When investing in any product, it is essential to know the reason behind the investment, whether it's for regular income, growth of money, or preservation of capital. The chapter suggests that understanding these objectives is crucial for achieving favorable outcomes in investments.
12:00 - 13:00: Investment Options and Associated Risks This chapter focuses on the different investment options available and the significance of understanding associated risks. It emphasizes the necessity of knowing the purpose of investments and the desired outcomes to ensure they meet personal financial goals.
13:00 - 15:30: Factors Affecting Investment Returns This chapter introduces the concept of risk in investment returns. It acknowledges that risk can have different meanings and perceptions for different individuals. The chapter begins to explore ways to counter risk, though the specifics are not detailed in the provided transcript.
15:30 - 18:30: Investment Strategies and SIP Explained This chapter discusses the importance of financial education and literacy as key to managing risk effectively. It focuses on various investment strategies and explains the concept of Systematic Investment Plans (SIP). As you become more financially literate, your ability to make informed investment decisions and manage financial risks improves. SIPs are highlighted as a popular choice for regular, disciplined investing, allowing investors to benefit from rupee cost averaging and potentially gain from the power of compounding over time. The chapter encourages continuous learning to enhance one's wealth management skills.
18:30 - 19:30: Conclusion and Key Takeaways The 'Conclusion and Key Takeaways' chapter emphasizes that achieving the best results requires acknowledging and managing certain risks. It highlights the importance of effort, time, and a disciplined approach as essential components to success. The chapter underlines that nothing is achieved instantly and identifies discipline itself as a significant factor, implying that both discipline and lack of it have their risks.

m2 c7 investments prs Transcription

00:00 - 00:30 Welcome everybody. I Pasha Sina welcome you back to the third chapter on this financial literacy and first two chapters which I talked about was on managing income and expenditure and then saving. Now the purpose of the whole thing was to save some money but to use that money whatever you have saved for some meaningful purpose not keep it idle at home but to invest why because
00:30 - 01:00 investment means some purpose. So we are going to talk about investment in this session. So what we are we will be covering let's look at it we'll be talking about what is risk fundamental of investment investment options understanding return factors which are affecting returns and the investment strategies now let me tell you one thing Warren Buffet which is a well-known value investors which is one of the most
01:00 - 01:30 admired and respected investors across the globe said one thing wherever you are investing ing you should know why and for what you are investing. In case you don't know and better not invest. Now if somebody is reading that statement of Warren Buffet, he's not saying don't invest. He's
01:30 - 02:00 saying no. Why? and for what u R. So the key word here is why and for what? Now whenever we are investing
02:00 - 02:30 anywhere let me in any product there has to be some reason why for what these two things are very very important why am I investing there must be some purpose because whenever I'm investing in any product I'm looking at some favorable outcome and the favorable outcome is maybe regular income maybe growth of money maybe preservation of capital it
02:30 - 03:00 could be anything so I am looking at all those things now but one thing which is very very important in the whole course is which can impact these two things is the risk that's why he had said this sentence you should know why and for what you are investing because if I don't know what will be the end outcome what will be the end result then it's not going to serve my purpose so that's the first Now there's another thing which I'm
03:00 - 03:30 going to tell you about risk. Now when we talk about risk, it can have different meaning, different perception for everybody. But one way of countering risk is
03:30 - 04:00 The more you get financially educated, financially literate, you are managing the risk. The lesser you
04:00 - 04:30 know the risk is more. Now each one of us want the best but as we have seen in our earlier session nothing comes free. There is time there is effort there is a disciplined approach. So many things are there and if you look at it yes everything comes with this type of risk also but some type itself is the biggest risk. Things do not happen overnight. discipline or in discipline.
04:30 - 05:00 If I'm undisiplined in my any of my activities, forget about investment. That's a risk. And we have seen how people make their life very miserable by having a very indisciplined way of living. So if you look at it, effort same way. So these are all things. Now when we talking about risk in investment and definitely what we mean about that that I should not be making any loss I should be getting a good return I
05:00 - 05:30 should be getting a regular income all these things are there so that's why if I want to know the answer of these two for why and what I need to have a financial education so we are going to talk in detail about that and risk reduces as your financial education increases. So let's go ahead and try to understand the risk in detail. What is risk? Now for different people risk can mean different
05:30 - 06:00 things. Maybe for some it is out uncertainty. When I'm saying uncertainty, I don't know what's going to happen. For example, let's say if I if I say something what what will be the weather let's say 1 month from now, nobody knows whether it will be raining or not raining. So uncertainty is something. Now whenever we do something we don't want uncertaintity. That's for sure. We always want something which is certain. But of course things are not in my control.
06:00 - 06:30 There are so many things which is beyond my control. Even if I want something to happen like this maybe exactly it will not happen. Today when we are talking of our investment ultimately I'm investing in some assets some investment product and those assets though in investment products do get impacted by so many external factor. So there is a element of uncertaintity. The second is which is a
06:30 - 07:00 very very common way of looking at risk is loss of money for most of the people. I've invested one lakh of one lakh of rupee. I don't want 99,999 not a single pass but again loss of money is something also should never be looked from the notional perspective but it should be looked from the real perspective and as we have seen in our earlier session it's the real rate of
07:00 - 07:30 return or real growth of money that should matter not the notional so loss of money it should not be taken more from the nominal point of view or notional point of view but it should taken in a real sense that means net of inflation I should not be losing any money could be getting less than expected. Now here there are two things which are very important less and expected. Now one way of looking at it is whether
07:30 - 08:00 my expectation is correct realistic or incorrect unrealistic. So this itself has got a lot of meaning. For example, if I'm expecting something which is not realistic and if I don't get that, if I get less, then definitely I feel a risk. But maybe that's not a correct way of looking at it. So whenever you are expecting it should
08:00 - 08:30 be should be realistic and correct and if you are getting less than that then of course that would be so here the expectation itself has got a very very big meaning what I'm expecting having unrealistic expectation. Now let's say for
08:30 - 09:00 example so many people invest in stock market and we have seen last 1 month, 3 month, 6 month the return has been phenomenal. Now one should not form an opinion that if last 3 month return has been let's say 50%. Going forward if I'm going to also invest and I will also get a 50% return then that is a wrong expectation. you cannot have that type of thing because as we have again sort of there are a lot
09:00 - 09:30 of factors which are impacting. So when we talk of risk there are so many different ways of looking at risk but I would always say the biggest risk is
09:30 - 10:00 The biggest risk is not understanding the risk. Now let me give you one situation. The life which we are leading is it risk-free? It is not risk-free. I'll give you a very simple example for any person to survive on
10:00 - 10:30 this earth. There are three basic things which is must which is air, water and food. And today when we look at it the air what we are breathing in all of us know the pollution level all other things that is also not pure. The air quality level is deteriorating like anything. So are we breathing good quality air? No. All of us know it. Now let's talk of
10:30 - 11:00 water. Now water is something all of us know which has been created by nature. But when we again look at the water which we are drinking is it pure? How many of us just go and take a tap water? No. Again we are having aqua god or something like that which is purifying the water. So even the water which is being supplied to us is not pure. Maybe there are a lot of mineral waste which are there. Maybe there are so many things which is not
11:00 - 11:30 good for our health. So that is also not pure. The third thing let's talk about food. Now we are eating so many things but if you really look at the weather then even even those products which are natural food grains, vegetables, fruits even these are they are also being the farming is being done using lot of maybe I would say chemicals and certain other things which maybe in long run is not good for our health. Now when
11:30 - 12:00 we are talking about these three basic things which is must for us each one of us even to survive on this earth air water and food if they are not risk-free it means simply life is not without risk so when we talk about risk the first thing I should know about this thing type
12:00 - 12:30 is not. So if that is the situation what we can do can we run away and go somewhere else? No. Sorry. I'll give you a very extreme example maybe on a lighter side. Many people say go to Himalaya and do some tapasa there. But today we know
12:30 - 13:00 even the glaciers at Himalayas are also melting because of global warming. Antarctica is melting. So today if you look at it we are living with risk. Our life is full of risk. So the first thing is of course understanding the risk and it is life is not without risk. Now if life is not without risk then what we should be doing? We need to
13:00 - 13:30 So what the best course of action what
13:30 - 14:00 we can do is understand the risk what is
14:00 - 14:30 there which can have an I need to face its impact and the last is how to manage the risk. We cannot run away from the risk. Anybody who thinks by running away from the risk he
14:30 - 15:00 has managed his life and investment then sorry you cannot do it. I cannot control the rain but I can save myself from becoming wet by carrying umbrella. So I should know how to manage the risk. When I'm going out, the sun is very hot. But I can save my eyes by wearing a sunglass. So I should know the risk, its
15:00 - 15:30 impact and how to manage the risk. So that's the real thing when we talk about risk and its management. Now let me extend the risk thing further. We have been talking about certainty and uncertainty. So there are certain things which are there is certain and uncertain.
15:30 - 16:00 There are certain things which are controllable and certain things non controllable. There are certain things which can say,
16:00 - 16:30 permanent or maybe temporary. Now let's look at the three things from a very very different perspective. Now we are living in a world where there is lot of uncertaintities but again there is some certaintity also. For example, let's see what will happen to the stock market. I don't know. What will happen to my investment? I don't
16:30 - 17:00 know. What will be the political scenario? I don't know. What will be the global scenario? I don't know. What will be the level of inflation? I don't know. So, lot of things which I can say is uncertain. But when I look from the certaintity point of view, then one thing is certain. Everybody wants a good life. Everybody wants money to grow. Everybody wants the assets and investment product to do well. So again
17:00 - 17:30 it's both the things within uncertainty also there are certain certain aspects which is leading things to happen. Now let's talk of controllable and non-controllable. Now there are certain things which are not in our control. For example, inflation is not our our control. What will be RBI's decision is not in our control. What will be government policies is not is not in our control. What will be the budget which will be coming is not in our control.
17:30 - 18:00 What will be the crude prices? This is not in my control. So there are so many things which are not in my control. But again since I'm taking decision looking at my benefit for example how much safety I want or safe return I want regular income I want or I want growth of my money now this is controlled so again there are external factors which is not beyond my control
18:00 - 18:30 it's not controllable but again there are some internal factors which is linked to me is controllable. So the objective is always should be focus on controllable and try to manage the non-controllable. Now let's look at the permanent and temporary. Now nothing is permanent in this world. Let's be very clear. Only those things are permanent which has been created by God. For example, sun, earth, moon, all of us
18:30 - 19:00 know it. That is permanent. Whatever has been made by human being is not permanent. Industries keeps on changing their shapes. Companies come and die. Investment products come and again replaced by some other investment products. People attitude, behavior, everything changes. So again when we are looking at the all these things, all these things do impact the risk.
19:00 - 19:30 And as I told you the biggest risk is not understanding the risk. Once I know all these things and its impact and how to manage it then I can manage the risk. Now as we were talking about investment and it's very clear why we are doing an investment ultimately investment is nothing but a money management and why it is investment the other form of uh saying investment is it's a deferred consumption. So we need to understand
19:30 - 20:00 ultimately what is the important thing is here the money and that has to be managed. Now I can look investment from two perspective either in terms of money. For example, let's say I have invested 1 lakh rupees, it has grown to 5 lakh rupees. So it's very clear I have got four lakh more or I can look at more from the return perspective. Same way. So return is a calculation. Ultimately what involves is the money. That's very important. Now ultimately what I'm looking
20:00 - 20:30 at money should be safe. It should [Music] grow. I should get regular some money. So it could be anything. It could be protection of capital. It could be anything. Objective could be anything. But if you look at it, everything is linked to money only. Now when I'm looking at everything at money so ultimately all these things all these
20:30 - 21:00 things gets impacted by something called risk. Now there's a very very important thing risk and return let's be very clear risk and return risk and return are the two side of the same coin we always we should remember if there is no risk there will be no return
21:00 - 21:30 higher the risk higher the return we must have heard all these these things so we need to understand risk and return are the two side of the same coin But there is a difference. Whenever you invest, wherever you invest, in whichever assets, whichever investment product you invest, it is subject to risk. There's nothing risk-free which I told you. But what is important here when I look at the risk and return independently and if I want to draw a relationship between the two and each one of us whenever we
21:30 - 22:00 are investing, we are investing for return only which I've already explained to you. But important thing to note here is risk is not dependent on return. Risk is not dependent on return. But
22:00 - 22:30 return is dependent on risk. It's a very very important thing for us to understand. Risk is something coming from so many external factors and return is something what I'm getting it now when I again look at it risk because if I'm looking
22:30 - 23:00 at a good return safe return high return whatever word I can use it ultimately I have to look at the risk also nothing comes free that's why it is so it is told higher the risk higher the return no risk no return we always uh hear this word also no pain no gain that means There has to be some element of sacrifice. There has to be some element of risk ability taking ability. All these things are there. Now let's look at the risk
23:00 - 23:30 itself. There also there is something called notional and there is something called real real risk. and notional risk. Let's use the word. Now I'll give you an example. Let's say somebody has invested today in XY Z stock and he has invested let's say
23:30 - 24:00 1 lakh rupee. Let's say after 5 days based on the market value this one lakh becomes 85,000. Now there is clear loss of 15,000. But it is only on paper. That is called notional risk. Let's say after some days this 85,000 again grows and it becomes 1 lakh
24:00 - 24:30 25,000. Now that person had invested 1 lakh now which has become 1 lakh 25,000. Now it has gone out by 25,000. That is also a notional risk. When I'm saying notional risk, it is only on paper. It will become a real risk. when you take some action. But let's say if somebody sold it at 85,000 then actually he had made a loss of 15,000. Now that becomes a real risk. So we need to understand between
24:30 - 25:00 notional risk and real risk. Notional risk is still it is there you have not acted upon. But real risk is when you act upon. Now of course risk is there but we should get affected only by real risk notional risk but if we take a wrong action out of panic out of fear out of maybe somebody's wrong guidance then it will become a real risk now when I'm
25:00 - 25:30 talking about the risk just like what we talk about notional return and real return risk also has to be looked in the same way and as I told you risk is not depend dependent on return but return is dependent on risk. So where I have to protect myself when I'm making an investment it is the real risk that's the way I have to protect myself. So real risk can happen from any of the behavioral aspects anything wrong which has been done it is only on the paper so when you realize a return this
25:30 - 26:00 is what gets affected. Now just look at this there can be different way of looking at it. There is a glass where there's half pulled by water and half is empty. Now somebody can think is maybe there is an opportunity of more water to be poured. So this is a optimist.
26:00 - 26:30 Maybe somebody is thinking or concentrating more on what has been filled and is even not looking at what is the opportunity. For example, somebody is quite contented whatever is happening. Maybe somebody is looking at no there's enough scope for filling it up. So there are different ways of looking at risk. Some people will think why I should be taking a risk. My life is good
26:30 - 27:00 because everything is going good. I'm earning good salary. I'm meeting all my family expenses. So I did not need to invest or even if he's investing also maybe he's looking at the safer product maybe something let's say every type of thing but as we have seen inflation is the biggest enemy of the money and long-term inflation the purchasing power of money very drastically. If somebody thinks boss I
27:00 - 27:30 don't need to invest let me put my money in my home but all of us know even if he has kept let's say one lakh rupee at his home after 10 years if he is taking out though the notional value will remain the same but the real value is going to get reduced the purchasing power of that one lakh has got reduced so by not taking any risk you have not gained but you will always lose let me tell you whatever situation somebody can think of by not
27:30 - 28:00 investing by not taking any risk in investment you are never going to gain you will always lose. So the best way to manage risk is look at the opportunities look at the scope and take advantage of it. So the biggest risk is not taking any risk. So as I told you uh real risk is what should matter to me and not notional risk. But very important thing here is
28:00 - 28:30 to understand is notional risk just plays in our mind or psychology and real risk is something which actually happens. So what is important we need to protect ourself from real risk but notional risk as I told you it does play on our mind. Now before we go ahead we need to understand whenever we are making any investment in any asset any product nothing is risk-free in this world that's for sure I mean I told you example when we had our earlier session
28:30 - 29:00 so whatever wherever you invest even the safest of asset let's say government securities GC that is also subject to interest rate risk so whenever I'm investing I want a good return safe return regular income all these things I know it but different risk do impact acted. So what is important for me to understand the risk first now when I'm looking at the risk I'll divide it into three
29:00 - 29:30 part understand the risk. The second is impact of it. So impact of that risk and
29:30 - 30:00 finally nobody can remove many of the risk but yes how you counter the risk If I know all these three things, believe me, no risk can harm me. I mean, let's look at an example in our day-to-day life. If I know what's going to happen, what will be the problem?
30:00 - 30:30 Let's say there is a pitfall on the road. Waters are there logging in. So once I know all the things and if I know how to counter it, how to save myself, then of course I'm not going to get anyhow. So these three things are very very important. Now there are n numbers of risk which impacts your investment or your investment products or assets all these things. Now I need to understand these things. I'm going to explain you in these three. The first one is inflation risk and we have already talked about it in detail. Inflation is nothing but
30:30 - 31:00 erosion of purchasing power of money. Now it's all about money only. I require more money. So now what inflation is going to do? It's going to impact the final money which I'm going to get. I'm going to get lesser money in my hand because of inflation. So I got this. What is the risk? What is the impact? Now how I'm going to counter it? Because ultimately what matters to me is the real rate of return or real return. So every product is giving me
31:00 - 31:30 some or the other return. So two things which you have seen it one inflation impact will be on all assets all product but there are some product where the return notional return is more and there are also some product which in long-term gives you a higher return comparatively to other assets. There are some assets where the impact of inflation is more in long-term and we have seen that inflation impact is more in long-term. So what I'll be doing it if I want to
31:30 - 32:00 counter that risk then I'm not going to expose myself to those assets where the impact of inflation is more I'll be going in those assets where the impact of inflation is less for example let me tell you we have got two choices investment in debt or investment in equity now that is the best asset to invest in short-term because of the safety characteristic because risk is maximum term in shortterm I don't want to take
32:00 - 32:30 risk on the equity side but when I look at the equity in long term then all of us know equity is a growth asset and this growth is coming from the consumerism so now as our consumerism is increasing we want better life better lifestyle so equity in all probabilities will give you the best return because of growing consumerism because of growing economy and all these things whereas debt though it will continue to give you a notional return but the real rate of
32:30 - 33:00 return is going to get impacted. So I know what is good for me in short term and what is good for me in long term so I can counter it. Now let's look at the other thing which is liquidity risk. Liquidity means very simple whenever I want my money I can sell it and I get that into cash. So again how to look at it? So impact is there. Now let's say if I want to sell it and I want to convert it into cash, can I do it easily? I'll give you one
33:00 - 33:30 example. In our country, everybody has got a very very strong obsession for property, real estate, flat, house. Most of the money, savers money is in that side if you look at the RBI data. But can I sell my flat immediately and can I get into cash? No, all of us know it. It's not so easy. You have to find a buyer. Then there will be negotiation. So many things will happen. So I cannot sell it
33:30 - 34:00 today and I can get into cash immediately. So when I'm looking at the liquidity risk, I should know what are the again assets securities where the impact is more. And as I give you the example, real estate is not liquid. But there are some assets, some securities which are liquid which I can sell it easily and can convert into cash. So I need to expose my money if I really want money anytimes not to get into those assets where there is a liquidity risk even if let's say there is there are some investment product where I can sell
34:00 - 34:30 it as and when I want but again there might be certain penalties clause if I want get it before that for example let's say tell you if you want to go for a bank FD now you have given five years bank FD but let's say you want to sell it after one year some penalty will be there so you need to understand the penalty charges is exit load if any and then you have to choose the right product. So you can counter that risk. Now let's talk of the credit risk. Now what is credit
34:30 - 35:00 risk? Credit risk means simply that if somebody is giving money to somebody that person has taken a risk. Now this credit risk is in debt because in a debt we loan money to somebody we give money to somebody. Now the risk let's say if I have given money to somebody for me the risk is will I get my money back or not. So whenever I'm giving money to somebody or whenever I'm taking money from let's say bank or
35:00 - 35:30 anywhere all of us know it there are certain features which are fixed. For example the interest rate the coupon rate is fixed frequency of coupon rate is fixed. It has got a predefined maturity and also when the principle the capital will be paid back. That means there is a cash flow pattern which is fixed. Now if there is any deterioration or deviation from that cash flow pattern commitment then that's a risk. Now as per regulator guidelines private
35:30 - 36:00 sector companies if they are raising money they have to be mandatory mandatory credit rated. So we have seen AAA double A all these ratings. So rating in fact gives us an idea about the creditworthiness of that thing. So this is what now what risk it can happen. Now let's say if you have invested in a AAA rated paper for example let's see and rating is reviewed regularly by the rating companies AAA becomes double A what happens that means the risk has
36:00 - 36:30 increased so let's say if the AA becomes double A it simply means risk has increased when I'm so these ratings are done looking at the financials of the company and now the moment risk is increased what happens it impacts the liquidity of that
36:30 - 37:00 security which is being bought and sold in the market that's one thing now the moment the risk is increased what will happen buyers at buyers interest will decrease because nobody would like to more risky things that's why generally you will see the lower rated paper offer a higher rate of return but again when I'm looking at the credit risk we need to understand within our debt market there
37:00 - 37:30 are investment grade securities there are speculative grade securities there are default so definitely default and speculative grade securities not to be considered it has to be within investment grade only and within investment grade also So the higher rated paper is good to invest. So I have to look at the credit rating. Even if let's say you are written in investing in some other let's say bank and other places also you need to look at the creditworthiness of the bank. For
37:30 - 38:00 example let's say if somebody is investing in a PSU bank like SBI, PNB, Kandra bank with something like on a Gramine bank or something then of course the risk is increased. So I look from that perspective. Now default risk is a subp part of credit risk. So it has been already committed when to pay the interest rate, what will be the frequency of interest rate, when the principle will be paid, all things are well defined. Now anybody who has invested in any of the debt instrument,
38:00 - 38:30 he knows it what will be the cash flow pattern, how much is expected to get. Now what's going to happen in case there is deviation from what has been committed for example the commitment was to pay 8% per anom 8% per anom but paid let's say monthly for example now if it is not paid on the due date then that's a risk or let's say if
38:30 - 39:00 lesser amount is paid then that's a risk so ultimately it is as I told you it's a extension of predative risk But what happens if nothing is paid which is extreme form of a credit risk then means you have lost your money. Now again when you look at it I need to look at the rating because that gives me an idea that's one thing. Not only that there should be cushion also whenever you are investing don't get into a lower rated paper even within it investment grade paper have some cushion there. So definitely default risk is losing all
39:00 - 39:30 your money which is the biggest risk. So you how you can counter the risk that's one thing. Now let's look at the interest rate risk. Now this is a very very important aspect. Now we are living in an economy where two things are very important for a country as a whole. One is the economic growth which is measured by GDP and the other one is inflation. Now this economic growth and inflation to a large extent they are correlated also. For example, let's say
39:30 - 40:00 there is more consumption More cars are purchased, more houses are purchased, people are spending more money. Now it's it's going to help on the economic development. But what happen with the more consumption? In fact, inflation also goes up. So again economic growth can lead to inflation, rise in inflation at some stage of time. In our economic system, banks and lending institution, they are offering or they are getting money at
40:00 - 40:30 some interest rate. Now what will happen that interest rate assuming that let's say if the inflation is 6% let's say for example and the interest rate is 7% at that point of time. Now what will happen if the interest rate is less than the inflation then we are in a negative interest rate situation. So at any point of time the interest rate has to be on the positive side. That means more than
40:30 - 41:00 the inflation level. Now inflation as I told you it's uh not anybody's control. Though RBI government they try their best to control it but again it's it's coming from the millions of people consumptions billions of people consumption. So we have seen inflation sometimes going up sometimes going down. That's why interest rate is revised on a regular basis. So we have got certain policy decisions which are taken by government and also based on that uh banks also based or lending
41:00 - 41:30 institution based also on their own outlook about the credit oftake in the market or maybe growth requirement or consumption level or inflation level they take a call and then interest rate keeps on changing now whenever the interest rate changes what can happen now I'm looking at the interest rate from two perspective one from long-term and the other one from short-term. Now it's very very important long-term
41:30 - 42:00 if you look at the trend of interest rate in our economy we can see it is declining but if you look trend of interest rate in short term maybe sometimes going up sometimes going down it's like this long-term why it is declining because in long term the government and everybody wants growth Now interest rate is a cost. For example, let's say if you are
42:00 - 42:30 have uh paying 8%. For any borrowing or any loan, tomorrow if you have to pay 9%, that means it has increased. So the cost is definitely is a drag on the net saving or net profitability. So since the economy wants to grow, corporates wants to take money for their expansion plan, we as a consumer want to take for our consumer
42:30 - 43:00 activities. Government also takes money for infrastructure development, road, transport, all those things. So long-term objectives is growth. For growth, you need to have a lower cost. That's why the trend in long-term for a evolving or a growing economy like India is interest rate has gone down and you can look at it what was the interest rate in ' 80s in '90s in 2000 and now you will see there is a declining rate but as I told you in shortterm you have
43:00 - 43:30 to also look at the inflation so there has to be a fine balance between the two so that's why in shortterm interest rate can go up whereas in long-term it's dry now this is a very very important thing once I know these things that means in short term it will go but it go it doesn't go beyond our level because inflation also does not rise very suddenly and also RBI takes some corrective actions or they wait for some time before they take that decision but what is important here is a long-term
43:30 - 44:00 now if the long-term interest rate is declining and I can tell you if you look at the PPF rates NC rate bank FD rate you will find it is not the same what it used to be some 10 years, 20 years. So if long-term rate if it is declining and if I'm investing for long-term then of course my return is not going to be very high. It is going to be less. So again how I'm going to counter that risk. Now reinvestment risk again it's a extension
44:00 - 44:30 of interest rate. For example, let's say till year uh 3 month back the interest rate for any rated paper or any uh uh debt paper of a particular risk profile was let's say 8%. Now when it reduced to 7%. That means any investment which is done at 7% will be at a lower interest rate. So that means money is getting reinvested at a lower risk. It can go up also. So again reinvestment risk ultimately I'm
44:30 - 45:00 going to get a lower amount. Now let's look at the market risk and the price risk. When we talk about market risk we need to understand few things basically. Now I'll be focusing more on the equity. In a market there are every type of people who are operating. Let me tell you we have got speculators we have got day traders. We have got arbitrageers. So you've got every type of people who
45:00 - 45:30 are operating. Somebody wants quick profit. Somebody have got patience. They can wait for some long time. So people have got different expectation and based on their different expectations or how they look to maximize their profit their behavior can change. The other way to look at market risk is also when we are living in an economy and our economy is integrated with world. So within our country or even integrated with the world or there
45:30 - 46:00 can be good news there can be bad news. Now bad news can have a negative impact on the market good news can have a positive impact. Same way industry wise also there can be good news bad news company wise. So all these things will be there. So what happens when I'm talking about the market is it's all to do with the how I perceive and how I take the action whether I'm a net buyer or I'm a net seller. Now when these things happen of course there will be a price risk. For example the price of a
46:00 - 46:30 equity which was 150 yesterday might become 170 because of maybe some positive news might become 200. The other way around it could be also maybe from 150 it can become 100. So these things will happen and this is what is called volatility. Volatility is nothing but a movement of price. Now again when I know yes volatility will be there. So I know which is the asset which is less impacted by the news and views. Now since in a debt the cash flow pattern is
46:30 - 47:00 mostly no I can lose money only if there is a default or maybe if there is a change in interest rate and if the I have invested in a marketable debt securities then it can have some impact. So volatility is much much lesser in debt and much higher in equity. That's the difference because in a equity everything is linked with the fortune of the company or the business where you have invested as well as the economic and market factors from
47:00 - 47:30 my so once I know this thing volatility does impact. Now the second thing is when I look at the performance of the asset or the company where I have invested in long-term the return is linked with the fortune of the business performance of the company whereas in short term it's the sentiment which impacts the price. So sentiment is something very hard to judge. What was good today may be totally different tomorrow. So if I know
47:30 - 48:00 this thing is going to let me not expose my money which is more volatile in short term. So in shortterm definitely it has to be safer asset which is debt not equity. Now let's look at the political risk which is has to do low most with the government policies taxation I mean priorities of government all these things are there political stability. So you will always find a country where there is a political stability where government is able to
48:00 - 48:30 take some good bold decisions then that evokes a confidence in the investors who are investing from abroad because in our economy it's not the domestic money which is getting invested. We are getting lot of money from foreign monies also maybe in FDI, FBI's or foreign uh portfolio investment. So these monies also do have an impact. Now if they view a positive scenario from the political front then of course more inflow will be
48:30 - 49:00 there. If they view negative then of course there will be outlook and that can again impact the price and add to the volatility economic risk. Now economy moves in cycle and all of us know there can be sometimes positive things happening which you call it expansion. There might be sometimes slowdown, there might be sometimes recession. So these things are there. Now a very very important thing for each one
49:00 - 49:30 of no economy moves in a linear form. There will be always ups and downs. Let's be very clear. So it will be movement will be like this. It will be there. It will be there. So those risks are there. We need to understand. Now the question is when I'm investing what is the situation and what is expected to follow that's very very important for example let's say if somebody has invested when the economy is very good and expected to do better then of course you'll gain but there
49:30 - 50:00 also in which asset win product because again the growth asset or maybe somebody who has invested in let's say real estate they are going to gain now let's say the other way around is also there let's say if uh economy is going expected to recession slow down then of course the price or the value of the equity or real estate will go down. So again you have to look for the safety industry risk it has to do more with the life
50:00 - 50:30 cycle stage of the company industry sorry because every industry gets a birth like just like we people like individual we were young child teenager adult so like this we have got so a life cycle industry also have what has a life cycle now industry what life cycle that industry is for example let's say if I go back 20 25 years back then it was something which is a very very evolving industry today I
50:30 - 51:00 can say yes ID is a much grown or matured industry so new industries will come so those things are there now if you are in investing in a growing industry then of course there is a good upside but if you are investing in a decaying industry Then of course your risk has increased. Now let's look at the company risk. Maybe you have invested in Infosys
51:00 - 51:30 or maybe Vipro or Hindustan liver or anywhere. Now company risk is something to do with the company specific things. How good the management is? What are the fundamental factors of the company? Balance sheet profit and loss account cash flow movement utilization of the debt. All these things are there which are measured through different metrics, different ratios. So again when you're investing in a good company which is has got all the things good of course you
51:30 - 52:00 are going to get a good return good but if you are investing in a bad company which is expected which is not doing well or expected to do bad then of course you're going to lose the money. So as I told you these are the risk which will be there which none of us can avoid because all these things are external. Please look at it. All these things are external. But what is important? A bad thing or a bad impact can harm me only if I don't know how to counter the risk.
52:00 - 52:30 So that's the very very important aspect whenever we are making any investment decision. Now let's look at the investment fundamentals. We have already talked about saving and investing. Are they same? Maybe some people I've seen they are investing in some traditional investment product and they will say it's an investment. Now we need to
52:30 - 53:00 understand when I use the word saving if you remember I said there is a element of safety. So let's say I have saved 10,000 rupees. I have saved that means I have not consumed all my money. I was earning 50,000 I spent 40,000 I have saved 10,000. So when I say saving my focus is more on the capital I should not be losing the capital. I'm looking at the protection of the capital. Saving is something to
53:00 - 53:30 do more from the safety. Now when I'm looking at the investment I'm looking at the opportunities. Now that's very very important. when I'm looking at the investment, it is to do something with the my goals, my requirements. For example, let's say I want the best of education for my child 15 years from now. So, it's but obvious. Can I put my money in something
53:30 - 54:00 like saving and expect the money to go to that? No, it will not be there. I have to invest in some right asset. So saving and investment is not the same. Saving is a process habit where investment is a action. So it is a habit. Saving will always proceed before investment. Please saving is also very important. If I don't if I'm not able to save then from
54:00 - 54:30 where I'm going to invest. So I need to understand both the things. So objective of investment is to earn profit. When I'm saying profit, it means gain. It is gain because we are not investing for loss. Let me tell you anybody who is investing for gain. But when I'm looking at the gain, I have to look at from very real terms. So if you
54:30 - 55:00 look at it if I club both the things both so here let's say I'm saying it is safety when I'm looking at investment it is growth now ultimately what is I require I will club both the word together and I will
55:00 - 55:30 say let me explain you for me the risk means wherever I have invested in whatever product I have invested whenever I require money for the purpose for which I have
55:30 - 56:00 invested I should bet getting the desired quantity of money. Please remember desired quantity of money and as I showed you in earlier slide in short-term there are so many factors which can lessen your money so safe growth again I have to protect from that but in long-term also we have seen inflation can impact as well as there are some growth
56:00 - 56:30 assets which can give you a higher return. So ultimately it's not only about safety or growth. It's about save growth means whenever I require the desired quantity of money I should get it. That's very simple. But high return comes from high risk. Now when I'm saying high risk, what does do I mean? I don't mean that you should be taking a loss.
56:30 - 57:00 It means I should be tolerant enough tolerant enough to face the volatility. For example, let's say I have invested in a good quality equity. For sure I know that this company for example let's say Infosys or Maruti I'll give you an example of Maruti. Now for sure I know people want car and Maruti is the most dominant
57:00 - 57:30 player in the car market car segment and since people want car and Maruti is the most dominant segment player in the car market of course if I invest in shares of Maruti in long-term it is going to go up maybe in short term yes because of market factors volatility all those sentimental reason prices can go up and down but in long-term definitely I'm going to get it. So when I'm saying safe growth, it means that that means I'm tolerant towards the
57:30 - 58:00 volatility in short term high risk. This is what I means. And as I showed you in my earlier slide, once I know the risk, its impact and how to counter it, then of course there is nothing like taking risk does not guarantee a return and it is said market gives you the best of opportunity. Please remember economy gives you the best of opportunity. But the question is has
58:00 - 58:30 everybody gained out of it? If you really look at it today when I look at how many people have invested in equity, it is far far less than people who have invested in PPF or NEC or any other debt product traditional debt product. I'm not saying these products are bad. Please remember. But what I'm trying to say even if I look at the from the historical return perspective equity has given the best return. Let's say for example let's look at the sensex. Sensex sum was was 100 in 1980s
58:30 - 59:00 81 and today sensex is 72,000 and we are in 2023. So if I calculate number of years only 43 years but 100 has become 72,000 in 42 years 43 years. Now similarly if I look lot of uh I mean return from good equities or good mutual fund in long-term I have seen it
59:00 - 59:30 has given a very good return but the issue is how many people have invested because the very simple reason maybe they were not tolerant to this that's one part or as I told you earlier they did not understood the risk correctly so taking risk itself does not mean guaranteed return taking risk This is
59:30 - 60:00 how behave that's key word is this behave if out of panic it out of fear out of greed if you take a wrong decision without understanding the three factors which I told you the risk impact and counter then of course you can so right decision is a very very key thing. So once what risk to take what risk not to take I should be knowing it. There are only three requirements as
60:00 - 60:30 I told you liquidity safety and growth. So for any person whenever you say investing there are only three consideration. I can convert into cash as and when I require it because I definitely I have invested for some purpose. It's a deferred consumption. It should be safe and there should be group. So when I club it all three it is a safe. So when we are talking about
60:30 - 61:00 investment of course you are going to invest in some assets some investment products. So there are a lot of investment options. Now no asset or no investment product I can say is bad. But yes the other thing is also no asset or no investment product can be good at all point of time or to everybody or is suitable for everybody. That's the key here. So options yes a number of options are there but if you look at it there are some products like option futures
61:00 - 61:30 collectibles which are high risk. Then you have got middle real estate equity mutual funds high income bonds with mid-risk and of course the base which is so if when you look at it you'll find one thing when we talk about the base it is all debt when we talk about this middle base it is equity plus high income bond and
61:30 - 62:00 of course above there is Two words here high risk and low risk. What do we mean by this? Let's talk of the highest risk. First of all, now many of you might have heard or read somewhere that person had made a huge profit by trading in derivatives, option futures. These are all derivative products. He has made huge profit. Now again we need to understand this thing. If making
62:00 - 62:30 profit or magnifying your money was so easy for everybody then everybody would have made it. Please make it very simple. It's not so easy. Somebody who has made it of course they have deployed some strategy style that's very very important. So derivative products again is whatever you get it it's a function of the strategy which you are putting. But here the question is if your
62:30 - 63:00 strategy goes wrong then what can happen that's the key here then of course you are going to make huge loss also so when I talk about high risk also as we talking about high risk come with high return that means if you're ready to take higher risk now the question is I know my capability I know my skill set I know my knowledge I know how much risk which I'm talking about notion risk I can tolerate. What will be the impact on my psychology, my behavior, my mindset, my
63:00 - 63:30 health, all these things I know it. So if I'm not confident, why should I going for it? But if yes, if I can tolerate it, if I'm ready for that, I can go for it. So as I told you, this is not bad or something like that. It's a question is the impact and whether you are suitable for that. Now let's look at the middle. Same thing. It's equity. It's all market related. What is going to give real estate? Again function of economic situation, infrastructure development, all these things are there. But when you
63:30 - 64:00 look at the low risk, it's all debt. Why debt is considered to be low risk? Because in a debt, as I told you, the cash flow pattern is well known. The coupon rate is fixed. Frequency of coupon is fixed. Maturity is fixed. When I will get my principle back is fixed. So that's why it is. So what I'm saying when I say high risk and low risk there is something
64:00 - 64:30 called expectation of return and there is something called realization. ation of return of return and risk
64:30 - 65:00 is simply difference between expected ation and realization. Is it clear? So that's very clear. Now I'll give you an example. Let's say if I invest in a bank
65:00 - 65:30 FD. The bank managers told me sir you are going to get 7% return. So my expectation is very clear 7% and my realization is also 7%. So I would say it has got a risk low risk because the deviation between expectation and realization is less and even if you consider some of the money market instrument or let's say those instrument bond which is tradable in the market but there also comparing with equity the deviation between the
65:30 - 66:00 expectation and realization is less that's why they are falling under low risk whereas as I told you here you don't know what to expect and what you're going to get it that's why we need to understand high risk and high return. It's all about expectation and realization. Now, now a very key important word here is expectation is something what you need. That's very very important because I have invested for my need for my goal. So
66:00 - 66:30 expectation has to be in line with the need. Whereas realization is again a function of so many external factors. So many so many external factor I can tell you so many external factors are there it's not one two which we already talked about this thing which factor can have an impact I don't know that's why whenever we are talking about risk and return we need to understand that my investment has to be
66:30 - 67:00 in a product where there can be now somebody can say boss equity is a risk but you are saying equity is best for long-term Why? Because the reason is very simple. How much I will get it? I don't know. Don't know. Only God knows. Let me tell you very frankly. But for sure one I think I know. Everybody on this earth wants a better life, better lifestyle. Now let's talk of India. We are a 140 145 cr population. And when I
67:00 - 67:30 look at the lifestyle of a average man or even the poorest I see there is a drastic change. The same level of poorest maybe some 20 years back was not thinking of all those things but today they are thinking. So what I can easily judge today all everybody wants a good life good lifestyle which we they are going to get some of the product or services and this some of the product or services are provided by some of the other companies and these companies have got
67:30 - 68:00 their shares in the market. So if I invest in a good profitable company share which is whose product is in demand by the consumers then of course I'm going to put it. So when I'm looking at even expectation there should be a complete clarity on that and that's once I have to that once I know it then I have to take a decision and as I told you everything is good please nothing nothing is bad but it has to match with
68:00 - 68:30 your need and also your ability which is risk-taking ability. So what are the investment options and risk? All government guided schemes like let's say PPF, NSC, EPF, these are all government guaranted scheme. Now where wherever there is a government guarantee there will not be any default because once it is guaranted by the government somebody's going to get
68:30 - 69:00 that money. So that's very clear. So as far as risk is concerned, no risk with respect to return. But when I'm saying low risk, it is to do more with the credit. Please remember why I'm telling you the things because of course today there is something called interest rate also as far as debt products are concerned. So we see that today all government guaranteed products also the return is not guaranteed for
69:00 - 69:30 throughout the period return also keeps on changing for example PPF rate it keeps on changing NSC keeps on changing so this also keeps on changing but again the risk is less I would say compared to any other products then you have got bank deposit bank again is a one of the safest product but again within bank also you have got big bank you have got small bank all those things are there so if somebody is investing in a
69:30 - 70:00 smaller bank with a le lesser creditworthiness I so when I'm saying lesser credit worthiness I I mean to say where the interest of the depositor is not so big for example let's say let's talk of a grammine bank you have got a grammine bank also cooperative bank also but when you look at those banks they are localized to a very few locations and only maybe people or resident of those places are investing in those. But maybe if I take State Bank of India or Bank of Bodha or Access Bank
70:00 - 70:30 or ICIC Bank then we see they are they have expanded to almost all the cities and towns of the country. So those things are there. Then you have got National Pension Scheme NPS. Now today all those who are working in government of India uh organization or PSU it's mandatory for them to have a account in NPS but those who are not working in uh government or PSU that means let's say
70:30 - 71:00 private sector company it's a voluntary option for them. So again it depends upon whether you are going for it or not going for it. There also you have got a choice which type of portfolio you want. So you've got different different type of portfolio. Maybe something is uh having weightage of equity more. Maybe somewhere weightage of government's equity is there. Maybe somewhere weightage of corporate bonds are there. Or there is a mix of all those things. You have got life cycle stage funds for a person who is of 30 years of age, 35 years of age, the proportion of equity
71:00 - 71:30 is more. So at as the age increases the proportion of equity decreases from the total portfolio. So again return as I told you is a function of where your money has got invested. debt or equity or government's equities. withdrawal depend upon that premature withdrawal again it's not possible I mean there are some preconditions there PPF and EPF pre premature withdrawal is not there after some time of course you can take loan maybe after 7 years so there
71:30 - 72:00 are certain restrictions interest normally is changed every year so it's not that what I have invested today let's say if I continue to for 15 years I will continue to get the same interest Now there is a very very important thing for each one of us to understand there are many people if you ask them they don't want to take risk they will say I don't want to take risk when you ask them sir what do you mean by that they will say boss I want something which is fixed assured that's
72:00 - 72:30 our general mindset as I told you nothing is risk-f free in this world no investment option is risk- free even today when I'm thinking ppf epfa F NPS bank deposit which are primarily a debt investment the safest because things are assured let me tell you it's not assured that's where we are going wrong because let's say you go to a bank today and you ask that okay I want to
72:30 - 73:00 deposit for 1 3 years maybe bank manager will say 7% is the peranom interest is what I'm going to give you go after seven 6 Maybe the interest rate is higher than 7% or less than that. It can be same also. So even in bank FD also the interest rate keeps on changing. All these products interest rate keeps on changing. So this notion which we have got I want to invest where everything is
73:00 - 73:30 fixed assured that's not the situation. Maybe when I'm getting it there, I'm getting something fixed. But that is also fixed for some years. Let me tell you, for example, let's say if I do a bank update today for 3 years and I'm getting let's say 7%. for after 3 years when I I again renew that investment let's say for another 3
73:30 - 74:00 years then I don't know what I'm going to get it it can be 7% it can be more than 7% it can be less than 7%. So as we have seen interest rate keeps on changing. So nothing is fixed fixed it is fixed only for the time period for which you have invested and when we are talking about EPF PPF then it is the interest rate is changing every year. So please be very
74:00 - 74:30 clear as far as return is concerned that is also the ultimate how much money you are going to get again it is subject to all these things with the change in interest rate. Now let's talk of a stock shares. Normally we use the word. Now you have invested in Infosys, Wero, Indy any company which you have invested. Ultimately the value fluctuates. Why? Because value fluctuation is on because of two reasons. One sentiment in short-term and
74:30 - 75:00 the other thing is in long-term it is linked with the fortune of the business. Fortune of the business means thinking how good or how bad that company is doing depending upon the financials. For example, whether the earning is growing or not, which we call it EPS, earning per share, whether profitability, net profitability is growing or not. What is the level of cash flow? What is the level of debt? How correctly they are using their debt, whether they are paying their debt on time or not. There are so many factors which are impacting
75:00 - 75:30 ultimately the profitability. So, value of investment will keep on fluctuating. It is linked with the performance of the company. Since in short term sentimental factor is more impacting than the actual company related factors. That's why volatility is there. That's why stock if anybody is investing in stock he should know again two three things whether he understands all this
75:30 - 76:00 risk. If not then what he should be doing it. Then the other route is equity mutual fund. So why equity mutual fund? Because in equity mutual fund also money is getting invested in different different companies. But the advantage here is advantage of portfolio because money is not invested
76:00 - 76:30 in a single company, single industry, single security but multiple industries, multiple companies, multiple securities. That is concept of portfolio. Money is invested after doing a thorough research. So there is a research team which does the research very thoroughly what is good what is bad and then only they take a decision. So they do fundamental analysis technical analysis and then they take a call where to
76:30 - 77:00 invest at what time to invest at what price to invest how much to invest all these things are there but this is also subject to price volatility. The reason is again because the underlying things are the stocks there. Now let's talk about debt mutual fund. Same thing here. Money is there is a concept of portfolio. Money is invested in debt securities of varying maturity, varying coupon rate, varying credit rating. But there also it is
77:00 - 77:30 structured based on the maculous duration which is again linked with the cash flow which is going to come on a weighted average method in the fund. So there also yes risk is there same credit interest rate all this risk will be there because that is a risk underlying is again the type of securities but as I told you again there is a concept of portfolio everything is invested taking a uh proper risk management is there by doing thorough research when to buy what
77:30 - 78:00 to buy what should be a part of the portfolio if something is looking bad the fund manager is going to sell it will not keep it in the portfolio so all these things are there because in a mutual fund The biggest advantage is money is invested in tradable marketable securities. Now when you are investing in a liquid form of a market, tradable marketable where I can buy, I can sell anytime that means knowing the risk I can offload that security. If I feel
78:00 - 78:30 it's not good or it's not adding any value to the fund. If I feel something is else is better available, I will buy that. So that's one advantage. The second advantage is in a mutual fund on a daily basis people are investing or redeeming that means there is a constant inflow outflow which is happening. So maybe even if you have purchase something at a high price you get an opportunity to again invest at a lower price. So what is happening there is a averaging of the cost also. So there are
78:30 - 79:00 so many benefits of a mutual fund which I believe when you'll be talking about mutual fund chapter all these details will be explained. Now let's talk of a return. Very simple. I've invested in bank FD. I'm getting 7%. Peranom. So my return is this simple simple return which I can say it's interest return. The other way is compounded return. So we have already talked about compounding which is
79:00 - 79:30 nothing but interest on interest. So how you calculate it? This is the formula. How much you'll be getting it? This is again dependent on how much you have invested. This is the key here. More the principle, more will be the amount which you are going to get it. More is the interest rate, more will be the amount. And also if the frequency is more of compounding, more will be there. So the second one is compounded return. Now nominal return and real return we have already talked about it.
79:30 - 80:00 Let's say for example nominal return is 7%. But if the inflation is 5%. It's not this is you are getting you are not getting 2% even you are getting less than that because the formula for nominal return is for the real rate of return is 1 plus nominal return minus so you are getting less than that. Now let's look at the tax adjusted return.
80:00 - 80:30 Now we all know about real rate of return but there is another thing also which is called tax adjusted return or we can say net return. For example, let's say if somebody is getting 8% return and if that person is under 30% tax bracket, then he's not getting 8% in hand. It he is getting 8 1 minus
80:30 - 81:00 03 maybe somewhere about it will be 7 5.6%. Now many times when we look at it we get confused because we are looking at the nominal return but when we look at the real rate of return so here uh the example is PPF is given 8% so but here I've taken 8% not considering ppf but maybe I have considered something let's
81:00 - 81:30 say if I can change it to 8.5% also so again corporate FD is again it is taxable taxable where this is non- taxable. So what is important is not the gross return which you are getting it the net return net return always has to be net of taxation. So even if the gross return let's say for an example here
81:30 - 82:00 8.5% looks better than a pp of 8%. But since it is taxable your net return will be much lesser than the this return. So one needs to look at the tax aspect also. Now again uh here as I told you the other way of looking at simple return is let's say for example somebody has invested 5,000
82:00 - 82:30 rupees and he got 6,000. So his gain is 1,000. So if I calculate the return 1,000 divided by 5,000 the amount which I had invested multiplied by 100 simple return it comes as 20%. Now the question is yes it looks
82:30 - 83:00 very good 20%. But whether it has come in 3 month or 3 years. So when you look at these two things, let's say somebody has got 6 5,000 invested and got 6,000. So the gain is 1,000 and the return is 20%. But whether this return was in 3 month or 3 years, that's important. Now when I look
83:00 - 83:30 only at the 20%, it looks same. But when I'm comparing the two funds or two products the return are not the same. For example, here I need to annualize in both the cases. So how it is going to happen for the 3 month it will be if I do the annualization it will be divided by 3 whereas in this case it will be 20 * 1 divided by 3. one I have taken
83:30 - 84:00 because whenever you are analyzing it on the numerator side either you put day or month or year. So maybe days if you are taking that it will be 365 month 12 and a year it is one and on the denominator side you have to take the actual holding period. So since here you have taken it in month. So if you look at it the return annual return of this is much more compared to this.
84:00 - 84:30 Now let's look at it. What are the factors that affect the return? And we have been talking about the risk. It's not the market which gives you the return. Let's be very clear. It's not the product which gives you the return. It's also how you have behaved, what risk you have taken, what risk you have avoided. That's also very very important. The same thing let me tell you the same equity might have given a 60% return to
84:30 - 85:00 somebody in a one year's time but the same equity might have given minus 30% return to somebody in the same next one year time. So it's it's very very important we to understand the factors which affect the return. So what are the things what risk risk to take which to avoid that's very very important and as I told you there are only three consideration liquidity safety and growth I have to look at it and which I will always say safe
85:00 - 85:30 growth for example let's say if I want to I've invested for 2 days then definitely I'm not going to take any risk on this. I'm not going to expose my money in something which is more volatile or where the sentiment factors plays well. Definitely I'll be going for the debt and within debt also since there is a interest rate risk I know credit risk default risk I will go for the best quality of debt
85:30 - 86:00 safest maybe I will go for something which is not exposed to market risk that is interest rate risk I will go for something which is on a discounted side so I have to select that product which risk to take again it has to be depend upon my requirement how much to allocate Now a very very important thing is as I told you all assets are good all products are good nothing is bad but ultimately I'm investing for myself for my requirement what is suitable for me
86:00 - 86:30 so what is important is how much I'm allocating because my life is not of one day one month or one or two years it's for many years also so maybe something I require it in immediate term short-term midterm long-term. So according to that I have to allocate in the product which is going to give me the best result investor behavior. Now this is a very very important factor which I told you it's
86:30 - 87:00 not the market but your behavior in the market. It's not the asset but how you have dealt with the risk of that asset. This is one important. Now there are lot of biases, greed, fear. For example, let me tell you hard mentality. Everybody is buying this, let me also buying this. Everybody is investing, let me also invest it. Sorry. Let's say if somebody XY Z has invested, but maybe he's tolerant towards risk. Even if there is a notional loss,
87:00 - 87:30 he's ready to bear it. But are you tolerant toward that risk? Are you ready to bear that notional loss happening because of market factors, economic factors, sentiment factors, volatility, all these things? If not, then why following blindly what others are doing? because you know your risk yourself. So always go for that. So biases is very very important thing. The other one is let's say family bias. Let's say for example I have invested in some product and that has given me very good result.
87:30 - 88:00 Now I start thinking that this is the best product but maybe there are better products than that also. Have I researched it? So just because I had a good experience that does not mean that's the best in the market. There could be other better also. So I need to understand that. So there is a famil bias. Then there is another thing which is called confirmation bias. So when I what I mean by confirmation let's say I have already taken a decision some opinion and I try to confirm it with
88:00 - 88:30 somebody I'm thinking of investing in this product. Is it good? Now the moment you try to confirm what are the risk let me tell you first of all from whom you are confirming. Let me tell you very factly. Generally we confirm from whom? Maybe our friends, our relatives, our colleagues. But are they also a financial expert? Do they know all these things?
88:30 - 89:00 So if I am confirming this thing from somebody maybe who is not so wellversed or who does not know much about that thing, what I should be expecting from him whether he's going to give me a correct reply or wrong reply. That's first thing. The second thing is now again today everybody has got a ego and if you try to negate somebody's view counter it maybe you say no was no that's not a good decision it's not right decision don't do it then many people get offended also at
89:00 - 89:30 times now since we know all these things maybe that person is not going to take a risk of offending you will say yes yes you're doing right so once I confirm it without knowing whether where the person with whom I'm confirming is right source or not and I'm getting let's say a confirmation from everybody maybe it can lead to a wrong decision. So that's another bias which is confirmation bias. So there are lot of biases which are there another bias
89:30 - 90:00 is a recency bias. Let me tell you now what is recency bar? Generally we get impacted more by something which we have heard or read or seen in shorter immediate term. So that that impact is more in our mind. We don't believe remember something which has happened in a distant future maybe 1 year 5 year we don't remember hardly remember. If you put your pressure on your mind then know
90:00 - 90:30 you only you are going to remember. But something which has happened just recently we remember it. Now if something good has happened you form a good opinion. If something bad has happened that is also equally true to you form a bad opinion. But again that's not correct because that's a recency bias. Investment is not for short-term it's for long-term. Greed and fear. Now that's the biggest behavioral bias which and that's human psychology. Amen. We've become greedy at
90:30 - 91:00 times. For example, let's say I have invested in some XY Z stock one lakh rupees just 3 month back and just because market has gone up, prices of the security has gone up, it has become three lakh let's say in a very short span of time. Now again we become greedy and what we do maybe we are exposed more money at a price which may be on the very higher side and if tomorrow some correction
91:00 - 91:30 happens then I feel the pain. Another thing is fear. Now the fear of losing is so much in our mind which is in the case of most of the people they don't even try to explore or look for the favorable or good opportunities. Fear of losing now this fear of losing one has to look at very rationally. So let's say if I'm having a fear I'll put it very
91:30 - 92:00 simple. I have to look at it why I'm having this fear. Why? Why this fear? What is the reason? If I've heard from somebody's story, should I be embibing the same? Or if even if let's say I had my own bad experience, I should be fearful from that thing. No, I need to explore.
92:00 - 92:30 explore why I made loss. And when you explore it, you will see that maybe you took a wrong decision. Maybe you invested at a very wrong price at a wrong time. Maybe even
92:30 - 93:00 if you invested in a good security let's say it was meant for longterm but you out of panic you sold it in short term and you made a loss. So again when you explore it you need to look at the performance of that product whether that product has been always doing bad of course if it has done bad then yes there is a reason to believe but if not the same product has been good result many people have gained out of it then why to fear so again it
93:00 - 93:30 needs to explore all these things taxes it's a very very important thing we have already talked about it all investment products whenever you are gaining anything of it Whether you are getting interest income, dividend income or when you are selling you are selling at a higher price than what you have purchased it you are getting a capital gain. Now capital gain again is also taxed based on again what type of security it is. So again all those things are there you are able to pay tax
93:30 - 94:00 as per the tax structure and whatever you pay tax your net return gets reduced by that much. Let's say if you are doing through some stock broker or some professional then you are paying some fees some charges are there demback charges are there stock broking charges are there so many things are there this is a very very important factors investing without a purpose of gold now as I was telling you very
94:00 - 94:30 clearly investment is nothing but a deferred consumption and when I'm talking about consumption it is made by money. So investment is nothing but a money management. Let's put it this way very simple. So whenever I'm investing I have got some purpose. I require five lakh. I require 10 lakh. I required whatever the amount is there. That means there has to be some goal. When I talk about
94:30 - 95:00 goal there are three things. Let me tell you these are the three things one is purpose objective for my daughter's marriage for children education for retirement for purchase of car or what it could be anything let's say holidaying it could be anything purpose I want that but the second is thing
95:00 - 95:30 is when and the last one is how much. When when I require money, how much money I need?
95:30 - 96:00 So goal has got these three things both purpose and of course when I need it which is time maybe after 1 month after 3 years after 15 years how much I require it 10 lakh 20 lakh 30 lakh so whenever you are investing it should with be the purpose of goal and if you do it goal based investment then of course you are going to gain only not going to lose
96:00 - 96:30 lose. So what are the strategies which has to be followed? Have a clear financial goal which I already explained you. The objective, the purpose should be very clear. How much you need and by when. Now all assets are good. All investment products are good. But all are not good at all point of time or maybe not suitable for everybody. Let's put it this way. Now if you look at historically the asset performance
96:30 - 97:00 whether it's gold whether it's equity whether large cap midcap small cap or real estate or even debt you will not find that all assets have done well on a year-to-year basis maybe some asset has done better than the others some has assets have been which has given a very very good return good double digit return has given a negative return at some point of time so within assets also there will the performance variation at different different point of time. So
97:00 - 97:30 that's why what is required is I should not be putting all X in one basket that means all my money in one asset because as I told you all assets are good but as not good at every point at all or preferably so diversification has to be there across asset classes. Let's say for example I want something anytime maybe I put my money in a liquid fund or maybe it's lying in a saving bank account or something like that maybe I want something in a short term so again
97:30 - 98:00 you have to look at some debt product midterm maybe mix of debt or equity long-term equity gold again gold does well when the economy and political situation is not good so maybe again that situation can also come so you need to diversification across all these Diversification within asset class also maybe not everything if I selected equity then not everything in one form of equity something in large cap midcap small cap more should be always in a
98:00 - 98:30 stable type of asset product so large cap is more stable so I will be exposing more of my money in large cap but of course some exposure will be there on the other side also maybe I want to take advantage of market cycle maybe this industry is expected to do very well so maybe I'm having some exposure on that particular particular industry clarity on return with respect to risk that's very very important which I have been talking some investment products are
98:30 - 99:00 volatile anything can happen and particularly risk is more in shortterm in long-term you get a normal return or good return but it is the short-term which is what impact so again looking at your requirement again risk return has to be there rupee cost averaging now which is very very important concept called SIP which I'll be talking in the coming slide now there is another concept or a way to investment which is called
99:00 - 99:30 systematic investment plan which is called SIP now this is just a process the way to invest we have heard a proverb in Hindi which is called I think all of us have heard it a lot of stories we heard about it. So it is similar to that with every drop you are accumulating something. So SIP is that now why SIP most of us maybe are employed
99:30 - 100:00 somewhere and we are getting monthly salary on a fixed date and we are spending that money for the rest of the month for as per our requirement and yes we are supposed to save also and invest. So before we spend and we end up without any surplus or saving it's always better that I get salary on the first of the month in my bank account and maybe by third or
100:00 - 100:30 whatever date I have chosen let my investment go. So this is again a very very disciplined way of investment where what happens you have predecided which scheme to invest when to invest and how much to invest. So that's all a decision to be taken by the investor which is fixed sum of money at a regular interval whatever you have decided. So let's say you have decided 5,000 to invest on third of the month in XY Z fund. So every month this
100:30 - 101:00 5,000 will be going into that fund on a regular basis. One time mandate is already given to the bank. Auto debit is happening. So now today everything is electronic. So we know money is moving out. But why there is a need of SIP? We need to understand. Now generally when we take decisions, investment decision at times we become emotional also. Now what is emotion? Let me tell you. We
101:00 - 101:30 are looking at certain news, views, prices movement, market movements, sometimes going up, sometimes going down. Volatility is there. So maybe I can think okay let me wait for another one day. Oh the prices has gone down. The NAV has gone down let me wait for another one day. NA is a price of a unit in a mutual fund as per the market value. So we try to time the market. Now nobody in the world let me tell you
101:30 - 102:00 has been able to successfully time the market at all point of time maybe in few occasions some can be lucky but not always that's one thing and as I was telling you of course emotion plays very role let's say for example let's say if I want to invest in a particular fund the NA is 30 rupees now let's say I could not invest I waited let me see What will be the price tomorrow and from 30 it goes down to 28?
102:00 - 102:30 Now suddenly my something will go in my mind why maybe the prices can go again less and next day again maybe it has gone down to 26. So here what I'm trying to do I'm trying to time the market. I want to enter at a price which is low so that I get more number of units. So and in that way what happens maybe I'm not able to time the market because when you're looking all these things you are getting
102:30 - 103:00 confused. So the best way to get out of this thing where you are confused is to have a very very disciplined approach. So to maintain discipline without looking at the market level without looking the prices or net asset value I have decided irrespective of that I'm going to invest in XY Z product it helps in the accumulation of the corpus of course it has to be
103:00 - 103:30 long-term and SIP works very well particularly in equity asset growth asset what are the advantages of SIP no need to time the Right, which we have already talked about it rupee cost averaging now it's a very very important thing let's say for example I invested today and the net asset value was 12 rupees let's say next month the same due date which I
103:30 - 104:00 have decided I invest and the net asset value is let's say 20 so I investing 5,000 let's Okay, I have invested 5,000 here next month. So 5,000 divided by 12 I'm going to get some units. 5,000 divided by 20 I'm going to get some units. Now when I look at the total for 2 month only it is
104:00 - 104:30 32 whereas I've invested 10,000. Sorry. Now if I look at the average price it becomes 60. So this is what is called rupee cost averaging. Now here I have taken only for 2 months please mind it. But if I am investing for 60 month or 120 months that means 5 years 10 years 15 years 20 years then what happens in long-term it
104:30 - 105:00 has been seen that is this average cost is less and decreasing. So this is one advantage of a SIP rupee cost averaging. Now the second one is benefit of compounding. Now since I have invested 5,000 5,000 so what is happening? 10,000 15,000 20,000. So base is growing. This is the base is growing. That's one part. The second thing is if I have invested
105:00 - 105:30 in a growth asset in particular let's say equity we know after some time let's say after 5 years or 7 years you start getting a positive return. Now as your base has grown and if you continue to get a positive return on that base then your return also magnifies like anything. So this is another advantage of benefit of power of compounding which we have already talked. Now here again I would like to
105:30 - 106:00 go back to the rupee cost averaging. Now it's very very important today. Let's say I decided to invest on third of the month. So third I have invested. Let's say it is 12 rupees. Now again I'll be investing in the next one third but somebody is also investing on the fourth. Let's say if the he's investing at fourth and if the average here is invested at 14 so here it becomes 26. So here the average again
106:00 - 106:30 becomes 13. So when I look from my own investment of course on a monthly basis I know this happen but when I've invested in a mutual fund where daily somebody is investing or redeeming then this average is happening on a daily basis that's another advantage so this is another way of advantage a disciplined way of saving and investing I'm not looking at the market I'm not looking at the price I know based on my
106:30 - 107:00 requirement this is where I have to invest And as I told you in in SIP does well in a long-term particularly in a growth asset because you get the advantage of rupee cost averaging power of compounding all these things you get it. So this is a very very good way of investment. So this is again if you look at it as it is being shown now what happens somebody might be
107:00 - 107:30 thinking what will happen let's say if I'm investing 5,000 there are two things NAV and the other one is unit which I'm So 5,000 divided by NAV you are going to get units. For example, let's say if the NAV was 20 rupees then you are going to
107:30 - 108:00 get 250 units. Same let's say another time when you are investing so if the NAV is 25 you are going to get 200 units. So what has happened? Somebody might think here the prices has gone up but I have got lesser number of units. But here if you look at it the overall becomes
108:00 - 108:30 450. So if I multiply this 450 by 25 your value has gone up. That's one way of looking at it. Now let's take another situation. Let's another situation. Let's say NIA has again gone to let's say less 18. So in this case you are going to get a more number of units. Now somebody might think that my total investment value has gone less has gone less. So let's say in this
108:30 - 109:00 case if somebody thinks key NAV has gone down but here again you are going to get more number of units you are going to get more than 250 it will be more than that. more than this. Now we need to understand that this whatever SIP you are doing you are doing for a long term. So in long term let me tell you since there are only two things which is going to impact your total investment
109:00 - 109:30 value for a long term NAV as we have seen keeps on growing. It keeps on growing. Let me put it this way. Whereas units also keeps on adding. So this will continue. That means
109:30 - 110:00 NAV multiplied by units in long term is going to give a very very good amount to be as I told you this works very well in long term in shortterm there can be ups and downs. So the person as we have seen in the earlier slide one has to be disciplined and we have talked about earlier if out of fear or panic or
110:00 - 110:30 getting emotionally impacted if you get out of the fund or you stop doing SIP then of course and it I told you earlier also it's not that the investment or the product has made you loss no your own behavior has made you loss ultimately if you look at it so but if you have got patience discipline long-term of course you are going to gain in long term. So this is the biggest advantage of a SIP. So let's look at it from this example.
110:30 - 111:00 Let's say if somebody is investing 1,000 rupees and it is growing at a rate of 15%, though in shortterm it will not grow but maybe at the end of some 10 years 15 years you can calculate it has grown by 15%. So it grows slowly if you look at it. If I have to draw a line let me just look at it. If you remember I said that it's like a takeoff of a aircraft. It might not grow very rapidly initially but after some time
111:00 - 111:30 you'll find it is just growing very rapidly. So what has happened? Just see 27,788 then it is growing to 45,16 finally it becomes to 66 other 8507 which is 6 lakh 68,57. So SIP does very well in long-term particularly in a growth asset. But what is important is disciplined approach. That's one fact. Not get panicked by short-term volatility. In fact, it is an
111:30 - 112:00 advantage to you because if the units if the NAV goes down, you acquire more number of units. So in long-term both NAV also goes up and you acquire more number of units. So unit multiplied by LV you get the more number of amount at your disposal. So this is the best way to create a good corpus or accumulate the wealth. So now finally we are going to end up and what has been the key takeaways or learning understand the
112:00 - 112:30 trade of between risk and return and as I told you risk and return are the two sides of the same coin. So I need to understand both the things. Higher the risk, higher the return. Lower the risk, lower the return. It's very simple. So should I be taking higher risk? And what do you mean by higher risk? Higher risk does not mean losing capital. Please higher risk means being tolerant
112:30 - 113:00 towards the notional risk which is only on paper. So I have to be very clear on that clarity about your investment goal because whatever you are doing for yourself for your family some goals some objective is there when I want my money how much I want my money so that has to be complete and investment has to be done accordingly invest across asset classes diversification why diversification because no assets does
113:00 - 113:30 well at all point of time and you want to go for a safe growth managing your both liquidity safety and growth. So you have to find balance. That's why you need a diversification. Asset allocation. Stay disciplined, save and invest regularly. Regularly is a key here. So once I have decided that this is for me only for benefit of my me and my family only. Whatever I'm going to accumulate, invest is going to help me only. So it should not be made a
113:30 - 114:00 one-time activity or ad hoc activity. It should not that I'm whenever I'm going to have some surplus, I'm going to invest. Sorry, you always define your saving very clearly. This much I have to save and invest and then you spend whatever it may be. You have to do a very very fine balancing. We have already talked about regular expenses variable and discretionary. So you have to do budgeting and all other things. You have to save. You have to save and then you have to channelize that save to invest regularly every
114:00 - 114:30 month. Financial education must for managing risk which we have talked earlier. the more you get financially educated. When I'm saying financially educated, it's not about knowing about the return, it's knowing about the risk, the impact of risk and also how to counter that risk. So once you know all these things of course it is going to help you to manage the risk and
114:30 - 115:00 generate good return which is what you want for investment. So now I want to thank all of you for giving your invaluable time for this session and I hope I have made things very very clear in simple words how you should be going about as far as investment decision is concerned. So on behalf of NISM I again thank you and
115:00 - 115:30 wish you all the best for your future investment journey. Thanks.