Advice Must Match Investor Profile

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Advice Must Match Investor Profile
Advice Must Match Investor Profile
Rishad Manekia - 05 February 2022


Sarah, email

I have seen many friends invest in equity based on stock recommendations given by experts on TV or YouTube videos or other
media. Is it correct to follow these ‘buy’ recommendations?

First and foremost, when it comes to investing, it is very important to understand why you are investing in any security. Typically, you should start with your personal risk appetite, investment objectives and time horizon. This will determine your asset allocation and how you should invest your portfolio. There are many influencers on YouTube, on TV and on social media – it is very important to get an idea about their credibility and background, and understand their incentives in suggesting a certain product to the world.

A big part of this is to see if these influencers are registered with the regulator, the Securities and Exchange Board of India (Sebi), and the type of registration they have in place. The reason that this is important is that they can be held accountable for any advice they give.

Even after considering this, a person who is giving recommendations on TV or YouTube does not take into account or match your specific risk profile, investment goals and time horizon. Therefore, it is better to approach these recommendations with some skepticism and do your own research on what is the right approach for you.

Vikas Garg, email

Does it make more sense to invest a fixed amount every month in blue-chip companies or go the SIP way in mutual funds?

Systematic investment plans (SIPs) in mutual funds are a tried and tested method of investing. Mutual fund investments are diversified across multiple companies and, therefore, give diversification of risk and return. Mutual funds also allow you to invest in other asset classes such as debt, which helps with asset allocation. With direct equities, you get a lot more concentration as well as risk. Therefore, do your homework before investing, a critical part of which is monitoring the portfolio over time.

It is hard to define a “blue-chip” company. Moreover, a blue-chip company today may not be so tomorrow. This is where professional fund management of mutual funds is an advantage.

Richa Dhar, email

I started my first job in May last year, but am yet to make any investments. My employer is asking for investment proof. A significant amount has been cut as tax deducted at source (TDS) from my salary. Where should I invest to save taxes?

It is good that you are thinking of making an investment even if tax-saving is what is pushing you. Tax savings should be incidental or a secondary criterion of investment and not the primary objective. There are many different instruments that can help you save tax. But, blindly investing in any of these, without evaluating need and suitability, may jeopardise your financials. For example, you should buy a life insurance policy only if you have family members financially dependent on you. If no one is dependent on you financially, then life insurance might not make sense for your situation. Similarly, before investing in products like Public Provident Fund or National Pension System, you should know that they are long-term products and once invested, you may need to stay invested for long. So, look at your needs and accordingly decide which instrument is suitable for you and also qualifies for tax deductions.

Rishad Manekia, Sebi-Registered Investment Advisor, and Founder and MD, Kairos Capital

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