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Tag: investment planning

Are you a HNI and lost your money because of your RM

Where should a hni invest

are you a HNI and loosing money because of your relationship manager

HNIs are the most sought after by private bankers, wealth managers and stock brokers as they offer an average of more than Rs. 5 crores of fund. Portfolio management services (PMS) offered by brokers aim to give returns which are generally 4-5% higher than the benchmark. Wealth managers or private bankers promise to invest across asset classes. Often they package their schemes with fancy named structured products.

Take a typical example that you see quiet often. A presentation is made to you by a smart executive. You are convinced that your money is going to a big name in the market. Forms are signed. Power of attorney (POA), that allows the company to go ahead and invest on behalf of you and not wait for your approval, are given. When the going is good everybody makes money. You are treated to lavish dinners and cocktail parties. As the trust shapes up, profits are made, more and more cheques are signed. Meanwhile you are sold a big insurance policy and are persuaded for investment in a upcoming real estate project as well. And before you know you have already made huge investments.

And suddenly the market crashes. Your Wealth manager or Relationship manager calls you up and ask you not to worry. You are convinced somehow that you are in safe hands. The first loss happens and it seems to be big. More than by how much the market has crashed. You pick up the statement and realize that most of your money was either in the small and mid cap, or even worse, was being used in futures and options.

Well you thought its time to wake up and confront your RM. He comes and tell you that you will still make profit as now they will adopt another strategy which exploits the arbitrage opportunities in market or may be another strategy called straddle, that allows them to cover positions at both ends i.e. if the market goes down or goes up. You have no option but to say yes, go ahead but keep you informed regularly.

You make a little profit two months and suddenly suffer another loss in subsequent months. The answer to the loss this time is the market was very volatile and moved suddenly beyond the range. Or a new hi tech software in the market did not let them encash enough arbitrage opportunities. You tell your RM to stop trading. And he comes with yet new strategy. Invest in Gold. He called it gold-linked debentures.

The objective again is to match the performance of physical gold but keep your money safe of any downside. You tell yourself gold is the safest option. Let’s go ahead with this. Almost 80% of the money is invested in a fixed income product in such a way that on maturity the invested part, let us say 80%, and the plus they get on the interest equals that of the principal. That makes your money safe. The rest 20% or so is put in gold. But not in physical gold. It goes again in derivatives. This time it is gold future. And you realize later this again is a sham.

By now you know that these structured products are nothing but different strategies, often so complex that you do not even think of knowing how it actually works, and what if the market does not perform up to the expectations, which is more often than not. Promises that were made to you, that your capital is always protected and there is no way you can suffer any loss, was nothing but a plain lie.

You close your account with this company or bank. You are sad with your losses running into a few lakhs or maybe even a few crores, but you can manage. Your RM moves on. He / She is still getting his or her salary along with the bonuses that were made by playing your money in these products. Infact your RM even got a job promotion because of you. Its time you learn from your mistakes. Remember the following points:

1.. You must not just sign any paper or POA before reading it yourself. We agree time is more important to you. But the money you will save will be the money you earn.

2.. Understand the risks, capital protection, charges. Do not rely only on the RM. Call for a meeting with more than two senior managers and directors. Ask for past records of products and schemes in writing. After all you are giving away your hard earned money and big money!!

3.. Cross check about the management and the products with their competition. You are most likely to get more insight into the product.

4.. Subscribe to sms alerts of all the transactions, even if they disturb you daily. You can check them while visiting loo.

5.. Re-look at the privileges. The more they are. The more dinners you are taken out. The more it is going to cost you, without you knowing it. Remember, there are no free lunches.

6.. Learn from the mistakes of others as well. As it happened with Citibank where one of its employee produced an alleged SEBI endorsement of an investment product to win over clients. No regulatory body endorses any individual scheme or these kind of structured product. One can simply check at their website.

7.. These schemes or fancy structured products are more riskier than any of the conventional way of investing. Know your risk profile. Work out the time frame. Have a well balanced asset allocation. Diversify your portfolio and review it regularly.


Know what type of investor are you

Are you a successful investor or are the one who is being hit like a shuttle cock every now and then by the market as well as the friendly broker or advisor, or are the one who is sitting on the fence hoping to find the “golden ticket” to success.

Chances are either you are sitting on the fence or are unhappy with your investments, while your agent and broker are making money at the cost of your investments.

You might also have the following typical characteristics and behavior associated with investing:

The Ignorant

You are the key to survive for your Relationship manager and agent. The moment your agent and relationship manager has to fulfill his branch target or win a trip to Bangkok, he / she start “planning” on how to take out some business from you. Mind you the “Planning” is on how to take money out of you in the guise of “Planning” an investment for you.

He will talk big of Indian GDP growth, and then how you can make a killing in investing into infrastructure funds. One day he will talk about the land bank of one big builder and then another day on why is it safe to invest in Gold only. Then he will also convince you easily that one particular unit linked plan is the best in the market and it will double your money in the shortest possible time.

And you fall prey to all this. He will take out the form, get your signatures and fill it later. Because if he spends a lot of time filling up the form in front of you, there is a possibility of you changing your mind.

The Speculator

If you are a speculator, you want to make much higher returns and knowingly or unknowingly take extra risks of not diversifying their portfolio in various asset class or invest in few within the same asset class. You tend to choose taking control of your investments. You generally get a hot stock tip from your friend, broker or the business channel, and try to cash on it.

You are not scared to throw some money in Futures and Options, or are ready to buy a flat from a builder in a suburb without even investigating it enough. For you its all about now to take a chance on getting rich.

You are more of a gambler and doesn’t always invest smart. While sometimes you are lucky in winning lottery, you can never expect it to win every time.

The Spectator

You are the investor who is always busy in something and have no time to look at your investments. You will find a million answers on not investing. Stock market to you look risky. And by the time you take a decision on investing in a particular stock or mutual fund, it looks like market is headed for a crash. You have no knowledge in the real estate sector and no time to visit a site either. You cannot park your funds in Fixed deposits because what if you might need your funds tomorrow. And the investments you have made, if any under pressure of your friend, you have no time to review it or look at its performance.

Is it because you fear loosing your money or have no knowledge on where to start ? You are likely to make some money with your investments and not loose any money. But if you keep delaying the investments to tomorrow, you certainly are going to loose the value of cash in your hand (inflation is at an average of 8%) and also delay in accomplishing your goal of having a bigger / better house or car.

The Know all

You know everything. Yes ! This is what you believe !! You are the one who flips through Economic times quiet often. Enjoy watching Business Channels. And remembers that once the analyst had recommended a particular company to buy insurance. Or that Mid cap segment had a good run in a particular year.

But what about now. Has the micro and macro scenario changed. While you are now going for that particular insurance product, have you studied that IRDA (You know IRDA right!!) has brought in new regulatory changes and that product is no longer the best any more. Or that a large cap fund will deliver better returns in a particular cycle of market volatility.

The chances are that you were busy more in your work (in which you are good, probably best) and missed out on the other changes in the micro and macro environment. While having a discussion with your colleague or friend it is ok to show off that you know all but you can you risk taking major investment decisions for your self ?

The Saver

You are busy saving your hard earned money. You are likely to have a PPF account, some Bank FD’s, Mutual Funds, NSC’s and some Insurance policies. You are the one who will buy “Everything” that comes to you. It all started with saving taxes. Now it is more of a habit as you have spare money. Your portfolio might have everything, but most are impulsive decisions to invest rather than a clear , well thought of strategy to make your money optimally diversified and careful study of competitive products. You also are less likely to review your portfolio at a regular interval.

In our opinion most successful investors go through stages of investing before they become successful. Some take a longer and painful journey, while others are lucky to hit growth faster. And some learn from others mistake.


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