Wedding season just got over. Beautiful dresses, sumptuous food and fun and frolic all around, from outside it may look glossy and exotic but the reality is that most of us can’t stand those heavy dresses and oily food for long. The moment we reach home, the first thing we do is change those beautiful dresses and wear something which is more comfortable. Imagine what if you were to be asked to wear those shaadi-wala dress and eat that sumptuous wedding food all your life? The sudden reaction would be – I just can’t do it!!! That says it all, that what is good for a short span of time is just not possible in the long run.
But you must be wondering that what it has to do with our finances. The answer is; it shows that we human beings adore simplicity whatever be the case. Personal financial management is a real long term affair unlike a wedding which gets over in 3 days. And hence to keep the finances in order it’s important that we adopt simple strategies. Simplicity adds lot of value in the long run. But invariably, because of lack of knowledge, many of us follow complicated and complex structure in personal financial management. The example could be like buying multiple insurances with different companies, having multiple folios in mutual funds in the name of diversification, having multiple bank accounts and demat accounts, investing in exotic products like PMS, sector funds etc which collectively do not give any direction.
Below we have discussed a few financial products which would give you an insight on what happens to us in real lives and what we should actually do to make our lives much simpler and easier.
- 1.Insurance: This is one of the greyest area where most of the Indians have faltered. We have been sold investment linked insurances which are complicated and we hardly understand the head and tail of what the product says. People are flooded with products with different companies which they buy because of some social or commercial compulsion. All that manufacturers do is they play around the nomenclature such as Money back, endowment, ULIP, highest NAV and make a fool out of us. Nutshell buy an insurance which actually covers you against the risk of uncertainties. For instance if you consider buying a life insurance- Term Insurance is your bet!!!
- Mutual Funds: One of the most suitable areas of investment is mutual funds. It offer you not only plethora of products for diversification and but are really simple to understand and invest. But in the name of diversification, many land up buying multiple products of similar nature from different companies. Diversification does not happen when we buy different products but takes place only when we invest in different asset classes such as debt, equity, gold etc. Avoid investing in sector funds unless you are confident about the future prospects of the sector.
- PPF: It is one of the best and simplest investments products in India. It is our sincere advice that each member in your family should have a PPF account. The only point to understand here is that investment in PPF should be done keeping asset allocation in mind. The thumb rule is that invest small amount in PPF when you are young and keep on increasing as we grow old and have bigger corpus for investment.
- Chit funds, MLM Schemes: Avoid these products no matter how high returns they offer. Most of these products are based on faulty assumptions and have huge working cost. Of lately, many scams have emerged like Gold Sukh, Saradha chit fund in Kolkata etc. Now even Government along with SEBI is acting aggressively to close many of these schemes.
The above are only few instances where people go wrong and what better can we do. For long term success, the secret lies in simplicity. Stick with simple products, adopt simple strategies and you’ll see that not only you will make your financial life easier but also better. Remember, it’ the not the most costly drink that satisfies your thirst but it’s the plain glass of water that does!!!