Sorry I am very old fashioned in this regard. I guess there are many things which people consider an investment, let me tell you the risk involved in the same.
1. Make a down payment and buy a house.
2. Commit to a target – and pay the money in installments
3. Do a SIP in a mutual fund (or buy equity shares every month).
All 3 look like investments, right? Well they are, but look closely, and the risk is very different in each one.
In the first case if you buy a house costing Rs. 2.5 crores – for which you have borrowed Rs. 2 crores, your EMI would be Rs. 2L per month. The house belongs to you when you pay off the 240th installment. Till then the house belongs to HDFC. IF FOR SOME REASON THE MARKETS ARE DOWN, AND YOU CANNOT PAY THE INSTALLMENTS, YOU WILL MAKE A VERY VERY PAINFUL EXIT. Not too many people appreciate this risk. Ask those people who lost their jobs while paying the installments, AND the property prices fell at the same time. You cannot even seamlessly move from a 3bhk to a 2 bhk and reduce the loan. People who have not suffered think there is no risk. Chuckle, chuckle.
2. Commit to a target – say you decide that you will invest Rs. 1 crore in a Venture Capital Fund over a period of 5 years, and this product has a lock in of 7 years. This means you will have to pay an instalment of Rs. 2 million a year. Assuming that you have paid for 3 years and you are now suddenly stuck with the ‘asset’. What can you do? NOTHING. Zilch.
The company will tell you ‘Sorry even the money that you have given i gone down the drain. What can you do? Nothing.
3. You are doing a SIP in a mutual fund: you have made a payment of Rs. 24L over a 2 year period. Suddenly you have a cash flow – the MONEY IS ALL YOURS. If the markets have done well you will get Rs. 27L and in a bad market you will get Rs. 22L…BUT your money is available to you. EVERY MONTH YOU ARE TELLING THE FUND HOUSE….’I have a surplus so please invest’. You can stop, increase, decrease, withdraw, ….to me THAT IS A GENUINE INVESTMENT, without any leverage risk…..
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