Personal finances and investments, like any other field of human activity, are also marred by a number of myths. Though the situation is gradually changing with greater investor education and better availability of information and resources, many of the myths still persist. This article is an attempt to address a few common investment myths that prevail among the Indian investors.
Myth: Life insurance is good investment
Fact: Life insurance is an insurance scheme, and not an investment scheme.
This is one of the biggest investment myths that exists in the minds of Indian investors. Over the years, the myth has been perpetrated and further strengthened by the endowment schemes that have become so popular in our country. In fact, a huge majority of Indians have their ‘favorite’ endowment life insurance policies as their only investments.
Myth: I needs a high level of income before I can start saving.
Fact: You can start saving money at any level of income.
More an often than not, this is an excuse that we offer for our own benefit, that the current income or salary level is just enough to live from month to month, and that there is no scope for saving. The truth is, with proper budgeting, you can save money at an level of earning. It does not matter whether you save a big amount of money, or a modest sum. As I have often repeated, even a regular saving of just Rs. 500 a month goes a long way.
Myth: A cheap deal is a good deal
Fact: Rather than the price, you should analyze the benefit that would get from an investment.
Again, it is easy to be swayed by a seemingly cheap deal. Most people are tempted by an NAV of Rs 12, or a share that can be bough for Rs 42. But it is better to go beyond the market price of the investment, and look at the expected return that you will get out of the investment over the life cycle of the investment.
Myth: I am only 25! Why should I worry about retirement just now?
Fact: The earlier you start, the better it is.
Consider this – after retirement, your primary source of income is gone. But your expenses will remain the same. How are you going to meet them? You have to make a provision for them from whatever you are earning TODAY! The earlier you start, the more options you have, especially to explore the investment avenues that give higher returns.
Myth: Diversification? Why, thank you, I don’t need it!
Fact: Diversification is a necessary measure to protect your investments.
Remember the old saying about not laying all your eggs in a single basket? Well, it also applies to the world of personal finance and investments. It is easy to forget the virtues of diversification, especially if your current portfolio is performing well. Even if you have a high risk appetite at present, it makes sense to spread the risk over different classes of assets to protect yourself against a market downslide.
The above 5 points are the most prevalent myths that pervade the minds of the Indian investors. Now that you are aware of the myths, overcome them to reap the best rewards form your investments.