Market Risks and Mutual Funds – 2

In my view, if you have money, there is a risk wherever you keep it.

Where can you keep your money?

Under your mattress – there is a risk of theft or not earning any return on that money. Inflation will eat into the value of the money.

In the Post Office – inflation will reduce the value of your money.

Bank FDs will rarely give inflation beating returns. There is also the risk of the bank failing.

Stocks, Mutual Funds – The recent market crash and a general lack of panic shows that people have realized markets go down and up. At around 10,500 now, the Nifty has gone up by almost 38% from its low of 7600 in March! So, what is the risk of investing in the stock markets? The risk is that if you need the money when the market is down, you would be forced to sell at a huge loss. You should plan to avoid such a situation.

Real Estate – It is almost guaranteed that you cannot sell off a property when you need money desperately!

No investment is bad or good – each meets a certain requirement of the investor. One should think carefully on the pros and cons of each investment before going ahead and should make plans to take care of the possible negatives.

Want to know the basics of Mutual Funds? Click here

Unavoidable risk

There is one risk that no one can avoid. It is a ‘loss of consumer confidence’. As soon as there is a news item saying XYZ bank is come under RBI scrutiny, a long queue forms outside its branches – making sure that the bank collapses! No institution can have enough money to repay its investors immediately. One should also plan for such a scenario by spreading the money amongst more than one bank. After all, Rs.5 lacs is insured in each bank.

Warnings or education?

Well, shouldn’t the warning be ‘All investments carry risks’? The emphasis should be on educating the general public about the risk, rather than just put a warning label!

Take care and be safe.

Niranjan Bangera

Notes:

I have just revamped my website – www.financiallystupid.com. Do visit it and subscribe. Also let me know what you think of it, especially criticisms are most welcome. Please comment.

My original profession – marine engineering or seafaring has never been one that promoted itself or raised awareness. The stalwarts that led our professional bodies were always satisfied in organising official functions, where people came up on stage and said things that most of the audience forgot even before they left the hall! For the last forty years or so, I do not remember any campaign to raise public awareness of the profession. Now, there is the first of a series of videos out giving a glimpse of the profession. How appropriate that this is being done by the ladies in the profession! Do have a look at the video and pass it on to your friends and relatives. It is a great profession – https://youtu.be/8Ch8hKny2OA