Unless your parents have set the Thames, Ganges, Kosi, Nile on fire, chances are they have not managed their investments well. They may have done well, but it may not have been their strategy – could be luck!

So here are somethings that your parents / elders / teachers may tell you…and you should…ignore! Let me list 10 of them first:

1. Do something, do not just sit there: at least my mom has told me this a million times! In investing as in playing a sport – leisure/ recovery time  is just as important. Like a war – you prepare for 361 days and fight for 4. While investing you invest and then sit tight for long periods of time. You do not ‘have’ to do something. If you do something it has to be as a part of the overall strategy.

2. PPF, LIC, National savings certificate, etc. are safe investments: Well they are the best way for the government to get an unending source of money, nothing else. Post inflation and post tax all these investments WILL SURELY yield a NEGATIVE return. Remember it is the borrower who can decide the rates. Extremely unfair, but that is the truth! These are at best SAVINGS products, not investment products.

3. Maximise your PPF: If you have Rs. 70,000 to invest in a year, only about Rs. 1000 should go to PPF. However if you are investing about Rs. 5-6L a year, max your PPF.

4. If your funds are not doing well, churn: Yes winners rotate, but losers stay at the bottom! …but if there is a well managed fund and it is not performing, do not churn. Look at the fund manager, see if there is a change. Check whether there is a cultural change in the organisation. See the portfolio composition. If there is no change here, stay on in the fund. See why did you like it in the first place. Sadly investment monitoring is a process monitoring not a result monitoring.

5. Read the newspapers, be well informed, and act: The new theory is be well informed, but think for yourself! The media is not a place where you can learn. The standards are not exactly the highest in terms of quality. Also there is too much sensationalism even in the financial news. The best thing is to perhaps not read the pink papers…many have turned yellow.

6. Good things are expensive. The more expensive they are the better the thing. Perhaps true for all products OTHER than funds. The only thing within your control are the expenses that the fund manager charges. Also the way Sebi has structured the charges, as the size of the fund increases costs REDUCE. So a fund with a bigger corpus (say Rs. 9000 crores) equity fund will charge you less than a fund with a smaller corpus of say Rs. 3000 crores.

7. See your funds returns, if it is not good churn: Not to be confused with point no. 4: If your fund is not performing well, learn with what to compare. In a year where the Sensex has given you a return of -4.5% p.a. if your fund has fallen by only 1% – your fund is doing well. People compare previous year return to current year’s return. Learn how to compare, then compare, and then decide what to do.

8. See the fund ratings and invest in 5 star rated funds: The stupidest move! Star ratings are sold for getting ads. Not for the retail investor to use. As the total number of funds increase, the total number of 5* rated funds will keep increasing! Raters say ‘past is not an indicator of the future’ but anchors keep saying ‘buy it, it is a 5* rated fund’. The rating is one of the most cruel jokes on the investor. It means, nothing for investing. Just ignore the ratings. I am seriously considering starting a rating agency – and my lowest rating would be 5…then keep going up to 10! So my WORST fund would be 5* and best would be 10*. How does it matter? So be careful about the rater!!

9. Indexing works in developed markets, not India: If you do not want to worry and make mistakes, stick to an index funds like Templeton India fund (Sensex). It will not give you sleepless nights. Indexing will work in India over the next 10 years for sure.

10. Active management of a fund will help you compete with the best (please buy my news magazine is what they mean!). They also help you beat a recession, etc. Complete bull. Markets are a baby of ups and downs. The best fund managers can and do add value, but it does not mean they can beat the index consistently and avoid a bear run. Normally their performance is compared to the benchmark.

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  1. I agree most with point no 2 – PPF, LIC, National savings certificate, etc. are safe investments. Infact I had to show my dad my working in excel sheet to prove that LIC is only for insurance not investment! And I know of many people who dream of Rs 1 crore after 25 years if they invest in LIC…

  2. Thanks , another Five Star Rated Post ! (“rating”, pun unintended ;-)).

    Actually many parents may not even know about equity funds etc to tell these. Mostly they are obsessed with land, house, gold jewellery and other debt instruments you said.

  3. We know that as long term in (10+ years) equities used to give good return,but I would like to know what happened to Japan market,I heard that in last 20 years,Japan market did not give much return.Can you please explain the reason and can this happen to India.

    Thanks & Regards,
    V.Narayanan.

  4. Hi Subra Sir, one more short, crisp and to the point article from you. But Sir, I have once thought. I made some calculations for Tax saving FDs. Would like to share with you.
    If I am putting Rs. 100000 in tax saving FD, currently offering 8.75%, my amount after 5 years will be Rs. 152106 (assuming compounded annually). Assuming I am in 20% tax bracket, I would have saved Rs. 20000 in Tax and suppose I keep this Rs. 20000 in saving account, I will get 4% interest (assuming compounded annually) which will be Rs. 24333 after 5 years. So my final amount after 5 years by paying TDS of 10% on FD return: 152106 + 24333 – (10% * 52106) = Rs. 171228. This is annual return of 11.35% post tax. Can we consider this a Good return?
    Note: I am not a fan of FD investment and believe in Equities. But just to give a thought I did this calculation and will be happy to any thoughts and mistakes above.

  5. Dear Jsan, the calculation is wrong. When you are already in 20% tax slab, the interest income from bank FDs as well as saving Bank interest ‘ll be taxed @ 20.6%. 10.6% is the TDS rate if you provide your PAN card.

    Thanks

    Ashal

  6. I dont listen to my parents on investments but I dont blame them either. They didnt have subras and such excellent blogs.

  7. Subra,

    I’ve a few doubts/questions regarding Index funds in general and in particular to Franklin IIF. I remember reading earlier in your blog that you believe NIFTY is a better index fund than SENSEX — wanted to know why you suggested to go for Sensex plan in the post. Also, total assets under FIIF’s Nifty plan is around 13900 vs. FIIF’s sensex AUM viz. only 5811… Wanted to you know your thought process on this.

  8. The best thing is to perhaps not read the pink papers…many have turned “yellow.”

    I could not understand this. Could you please clarify.

  9. Good Article. Agree with almost all the points but 8. If you follow the Value Research Fund Rating then you cannot go wrong. They consider 3 and 5 year performance rating. Of course fund rating is not the only criteria. But for most people without much knowledge on MF details that is the only way to decide. It is probably better than listening to the broker who will recommend the fund that he wants to sell.

    Point No 1 is my favorite. I review my MF holding not more than twice a year and then make changes if required. However, from my experience I have seen that fund performance varies. Currently DSPBR funds are lagging their peers. But only 3-4 years ago they were winning the best Equity Fund House award. I had switched from Templeton Prima to Templeton Bluechip during the 2008-09 crash when Prima Fund return fell ( it is a Mid Cap Fund) dramatically. However, after 2-3 years the fund recovered and I felt bad that I had sold the fund when it was at the bottom thus magnifying my losses.

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