Less is More!!
In the series of “Less is More” Today we will discuss “Over
Diversification”
Usually what comes to our mind as we speak about
diversification is having many products in the basket of Investments. "Many" here
is not defined!! Its relative term😊.
I met people who have too many MF schemes, Many Insurance
policies, many Properties, NPS A/cs, Post Office deposits, NBFC deposits etc. Investors invest in all available options/products. You need not buy all that is available on sale🙏
Simple answer I receive is I have diversified my
Investments. Well that’s half true.
Let’s examine all of these hypothesis and see is it good to
do?
We have already discussed MF schemes in last blog. Adding to
that, having too many scheme in same segment i.e. Large cap, multicap etc
doesn’t mean diversification. Real diversification means having one (and
maximum two) schemes each in Large cap, Multicap, Midcap and Small cap. In case
you are investing in debt Mutual funds, do look for scheme mandates as to where
they can invest. Recently it is observed that people have moved their FD monies
into risky debt schemes and are concerned about the capital safety and returns
due to defaults and mark downs of securities. No Debt Mutual funds are equal to FDs. There are few MF categories
which are close to safety of FDs which are capable to offer FD Plus returns. Do
check your risk appetite before you invest.
In case of Insurance policies, Investors buy them thru many
Insurers. The reason given is what if the Insurance Company winds up? I know
investors who buy Insurance (ULIPs) against MFs with the same reason of
diversification in different asset class! This is classic myth👍.
ULIPs and MF would invest in same asset class i.e. Debt and Equity.
Investor should ideally buy a term plan from a reputed Insurance company which has long track record of death claim
settlement. Do not wish for lower premium which has low claim settlement ratio.
Investor can (if really convinced) buy ULIPs also but should examine all the
charges including surrender charges. Besides that, Investor should look at the
long track record of their fund performance too. To my understanding,
endowment, money back etc aren’t great wealth creation products.
For Health Insurance, again the same thing would apply as I
mentioned above. Have two Insurance companies instead of many policies from
same company. Ideally to reduce the overall cost, Investor should buy one
individual policies for all members and another should be family floater policy
with higher sum assured. Do check exclusions and other critical clauses which
affect claim settlement.
Now coming to favourite asset class of Affluent India
–Property. Investors feel diversified by investing in many projects in same
vicinity or same segment like -residential, commercial, land and Industrial
plots. Real diversification would mean mix of residential and commercial
premises. I do not feel safe when it comes to buying land as its observed that,
in many cases, they have issues like –title/demarcation, encroachment etc. Also
when it comes to land buying, cash component comes in as a deterrent. Ideally
investment should be made in a location you stay in as this is more convenient
to manage, lease out and also helps in understanding real price while buying
and selling (you might end up buying expensive or sell at less than market
price, in other locations). Depending on family members or broker seldom leads
to efficient management of property and or returns.
Retirement house is another fancy since a decade!! I am not
sure why should one invest in retirement house even 5 years in advance? One
must consider buying retirement house only around retirement time as at that
time you are sure of which location you finally decide to retire. You also get
the latest concepts, products and facilities if you buy at the appropriate time
(and not in advance) and you are seeing the connectivity and infrastructure
being developed. Retirement home as a product hasn’t delivered great returns
since it became popular.
Now coming to favourite asset class of the Mass India - Gold.
Simple investment advise here would be to buy the bar or coin as per the
investible surplus. Buying ornaments as investment is loss making proposition
while buying as well as selling😒.
Melting charges (or any other name), making charges, certification charges go
up to 15-25% in case of Jewellery. This eats up most part of your gains😢.
For HNIs, opening an
NPS A/c or some small tit bit Investments in Post office doesn’t help in
diversification but it adds to hassle of managing too many investments. For
middle class its fine to do some tax planning👍. HNIs are beyond tax planning, they should rather focus on tax
efficiency😊
If you are facing the same issue as described herein and
seeking someone to anchor your emotions and manage you investments? Do contact
me at 9833778887 or wealthcarein@gmail.com
If you find our blogs helpful, pls do like, share and
comment
Author –
Bhavesh D
Damania
Founder -
Wealthcare Investments
EduPrenuer,
TV show panellist and Blogger
"Risk comes until you know what, where and why you are
Investing"
Disclaimer: We respect all individual approaches. Sole objective of
this series is to burst a few myth in Investing. There could be genuine
reason/experiences and “less is more” may not be appropriate. Investor must
consult own advisor to figure out right approach before adopting any of these
suggestions.
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