Chapter 5: Selection and Monitoring of Investment Products

You should choose the right investment product, keeping in mind all the relevant factors that affect your investment.

Selection of Investment Products

  1. Financial Goals and Time Horizon - You can have numerous investment goals like buying a house, saving for your child’s education, a vacation, etc. Depending on the goals, the investment time period is determined. For eg: If a person wants to go on vacation with his family within six months, he/she will invest in short term assets which have low risk like short term government securities or bank recurring deposits. Whereas, if a person wants to save for his/her child’s education for 10 years, then he/she is more likely to invest in long term assets with high risk and high returns like equity mutual funds.
  2. Risk Appetite – Every individual has his/her own risk appetite. You must identify your risk taking capacity by analysing your assets and liabilities and select your investment products accordingly. For eg: If an elderly widow with little income, wants to invest her life’s savings. She will primarily be concerned with safety and income and would be more likely to invest in government sponsored schemes or fixed deposits. Whereas, a young single lawyer, with a healthy income and relatively few financial obligations will be more interested in pursuing growth through her investments and would invest in equity mutual funds or stock markets.
  3. Expected Return - If you are growth oriented, you would normally be less concerned with safety, and do not totally depend on income from investment funds. These types of investments in growth instruments are more likely to fluctuate in value and might have a greater risk of loss. Higher risk investments may have greater long term rewards, but in the meantime you will probably see some ups and downs. It is important to be prepared and be aware of this in advance. Eg: Investments in shares of publicly traded companies are usually associated with growth and are generally considered high risk investments.
  4. Saving Capacity- Does the amount of money you save, spend and invest depend on how much money you are currently making? Obviously it is somewhat dependent on the money you are making. You can invest according to your income and your liabilities. For eg: Someone who has a high paying job, but also has a lot of debt or liabilities, will not have the capacity to invest a lot of money in other assets. Small investments in low risk assets will be suitable for the person.

Monitoring of Investment Products

A timely and regular review of your investment products will help you in understanding whether your investments have performed as expected, whether your financial goal has been achieved and whether portfolio churning or restructuring is required. Below are some ways in which you can monitor your investment products:

  1. Tracking Websites- There are several tracking websites available like Money control, ET NOW, etc. wherein you can monitor how your investment products are performing compared to other similar products. For eg: If you have invested in a mutual fund, you can upload your investment details on these websites, get details of your scheme performance and monitor your funds performance in relation with other funds. This will help you in taking effective decisions for your portfolio.
  2. Client Portals- There are several online client portals which allow you to track your investments. These portals are usually offered by fund advisors or asset management companies. These are client friendly, easy-to-use portals wherein you can constantly track and monitor your portfolio and investments.
  3. Hiring Fund Managers- If you do not have the time or knowledge to manage your investments, you can hire fund managers. These fund managers manage your investments on your behalf. They also monitor your investments and adopt portfolio churning to keep your portfolio diversified and ensure good returns.

We invest to achieve our financial goals and have a happy and secure future and the key to effective investment planning and decision taking is proper evaluation, selection and monitoring of investment products.

Ekta Vikram

Ekta Vikram