Nirav Panchmatia's Blog

no-brainer

So what does the term “no-brainer” actually mean…

Well “no-brainer” means:

–     something that requires or involves little or no mental effort

–     An easy or obvious conclusion, decision, solution, task, etc.;

–     something requiring little or no thought

So why are we discussing this English phrase on an investment blog???

Well because in the world of Investments there are certain no-brainers that you should know so that you have a clear picture while investing…

So following are certain RULES or PRINCIPLES that have stood the test of time & that are actually No Brainers in the World of Investments:

  1. Always compare Returns post expenses, commissions & post taxes

One of the blunders that Investors do is to compare two investments before expenses & taxes; this paints a completely wrong picture & might lead to wrong investment choice…

Always deduct all expenses including commissions & taxes (if applicable) from the Gross Returns to arrive @ Net Returns post expenses & post taxes; now compare the Net Returns after expenses & taxes of 2 or more investments avenues to decide on where to invest? So for example an 8.50% per annum gross return on a Bank FD might be attractive to a person not paying any income tax but might be useless to a person paying 30% income tax as his post tax return comes to a pithy 5.95% per annum…

  1. Real Rate of Returns is what matters

The Net Returns (after expenses & taxes) calculated above must either match or beat Inflation, if not, then you are loosing money & not even maintaining the purchasing power of your capital…Assuming long term Inflation in India to be approx. 7.50% per annum, your Net Returns (after expenses & taxes) from any Investment avenue must be at least 8% per annum else you are driving in reverse direction…

  1. Do not mix Insurance & Investments

Never commit this blunder of mixing your Investments with Insurance needs; there are very few, if any insurance come investment plan that do justice to either insurance or investment; for your Life Insurance buy plain vanilla Term Insurance plan that doesn’t have any investment element attached and hence comes very very cheap and can offer very high Insurance Cover to the bread winner of the family…

For Investment needs, Mutual Funds offer an option for all your investing needs whether you want to park money for 1 week or invest for 3 years or 10 years…

  1. Mediclaim & Critical illness cover for all members of the family

No matter how financially well off you maybe, its important to cover each & every member of your family (from a 6 month old infant to senior citizens) with adequate Medical Insurance Cover (at least 2.5 lacs to 5 lacs) but that’s not it; there are many exclusions in Mediclaim policy like critical illnesses & for that go for an additional critical insurance cover;

  1. Investing via the SIP mode (Systematic Investment Plan) does not have an alternative

If one were to ask me what is one of the best technological investment that financial markets have seen over the last few decades then I will say without doubt it is SIP or (Systematic Investment Plan); so SIP is a process that allows you to invest a fixed amount every month (or week) in a Mutual Fund Scheme of your choice on your chosen date directly from your bank into Mutual Fund Scheme of your choice; So what’s so great about it? Well SIP does what we in the world of finance we call dollar or rupee cost averaging; so if you are investing every month in Equity Mutual Funds then it does not matter to you whether the market goes up or down in the short term as you are buying little bit every month and not everything at one go.

  1. Invest Short Term money for Short Term & Long Term money for Long term & you can never go wrong

One of the cardinal mistake that we Investors do is to invest short term money for Long term; say for example you have funds to spare for 18 months, you should not invest that money in Stock Markets no matter how compelling that opportunity looks because Stock Markets are meant for Long Term (at least 3-4 years+); so if you divide your Surplus Funds into Short Term (1 years & less), Medium Term (1 to 3 years) & Long Term (3 to 10 years) and choose an investment avenue accordingly then you shall always be at peace…

  1. PROFESSIONAL ADVICE is a must have & not a choice anymore…

Penny wise & pound foolish is how I will describe the behavior of many Indian investors; we are shy of paying nominal Financial Advisory fees and we think that we can manage our investments on our own; nothing is further from truth; Choose the best Investment Advisor in town, pay him his fees & follow his advice & laugh your way to the bank…

Shubh Dhanteras & HAPPY Deepawali ….


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