Having financial knowledge is no good if one does not know what are the basic mistakes a young (not in age but in experience of investment) investor usually makes. B.K. School of Business Management, Ahmedabad, welcomed Dr. Deepak Raste, Associate Professor at Sahjanand Commerce College and a SEBI certified Financial Resource Person, who was here to share something about his personal experiences in the investment markets and what SEBI & NISM have to say to young investors. Before I begin to report the session I will start by quoting famous saying which goes like:
“Early to earn implies early to save & early to invest”
Planning of finances is a necessity for all individuals. May it be a student, a professional or a senior citizen; Financial planning comes into picture at every stage of life. The early you begin to manage your money, the better it is. Looking at a survey conducted by Nielsen, consumer spending has increased by more than 100% over last decade. People out here are spending more than they are saving. A recent study showed that professionals between age group of 21-35 believe in enjoying their life and leave the savings part for the later stages of their lives.
Dr. Deepak Raste
Dr. Deepak Raste conducted a seminar on SEBI’s and NISM’s initiative called “Lessons on Financial Planning for Young Investors”. The session was about the importance of savings and investment and financial instruments available to help us choose the best suitable method of investment. He began by introducing the need of financial planning in the early stage of life. He explained it through an example of a college going student planning to throw a party where he has to decide on budget and make a financial plan. He insisted the students to prepare a monthly budget which should include all the sources of income and expenditure.
Keeping a personal budget will allow a student to manage his monthly expenses and will not face financial crunch. Just like professionals, students also complain about month ends. He also explained the steps involved in Financial Planning Process which are:
1) Gather financial data
2) Identify financial goals
3) Identify financial issues & gaps
4) Prepare a financial plan
5) Implement financial plan
6) Monitor & review the plan
While preparing the prerequisites to the financial plan, he advised us to have all short term, medium term & long term goals jotted-down on a piece of paper. It will act as a parameter to decide upon the saving & investment strategy. One important thing to note while working on goals is that all the goals must be SMART goals.
He also mentioned about the Risk-Return trade off. He quoted that “level of your investment depends on the level of risk you take and the higher the risk, the higher is the return ”. Compounding is a tool that helps you make phenomenal growth in your investments over a period of time, to which he added, “Do not forget the rule of 72.”
While making a decision on which investment to choose, he asked us to look at the inflation level. Inflation level and the return on investment will tell you if you’re on the right investment plan. He also explained the instruments available in the market such as:
1) Tax saving schemes such as NSC(National Savings Certificate), PPF etc
2) Equity Linked Savings Schemes (ELSS)
3) Infrastructure Bonds
4) Insurance (ULIP, Health, Life etc)
5) Mutual Funds & Equity Markets
The class engrossed in the interactive session
After deciding on the investment instrument, it is necessary to have a proper investment strategy. Systematic Investment Plan (SIP) is the most used and renowned investment strategy to start off with. A fixed amount of money is invested in the selected financial instrument through ECS from bank account and maintains the investment level. He quoted an example of Mr. Warren Buffet that he started earning at the age of 14 and started saving that time itself. Dr. Raste advised the youth to change the mentality of spending more than saving. Instead, he insisted on saving today to help tomorrow.
At last, he emphasized on keeping track of all of the investments and stay informed about issues that may affect investments like taxes & inflation. He finished by quoting “Try to differentiate between needs & wants. The jug of wants is larger than jug of needs. Income will fulfill needs but to fulfill your wants, there is no other option but to invest”.
As reported by:
MBA (FT) 2011-13
The author is a member of IT Infrastructure Committee at B.K. School.
An engineer by profession, he is passionate for a career in a technology-based firm that provides financial consulting and solutions. He is an ardent lover of LAN gaming and likes to explore MS Excel for statistical analysis.