Let need decide your investment decisions

A financial product should not be bought off the shelf as it involves long-term planning. Prashant Mahesh tells you what you should do before buying a product

FOR those hooked onto the internet, all it takes is a couple of clicks to buy a financial product. It is so easy, that some even buy some financial products without looking into their financial requirements. Experts warn that such indiscriminate buying may lead to difficulties later. Here are some of the aspects you must consider before buying a financial product:
IMPORTANCE OF ASSET
ALLOCATION
Before buying a financial product it is essential for an investor to understand what his needs are. "Understand your risk appetite, know how long you are ready to stay invested, ignore short term market conditions that usually come in the way of meeting your goals and then decide the product you want to buy," says Ashu Suyash, managing director and country head — India of Fidelity International.
    It makes sense to profile yourself in conjunction with a financial planner. He creates a profile by understanding what your immediate needs are, what your future goals are and what kind of a person you are. Accordingly he could classify you as a conservative, moderate or aggressive investor. Once that is done, he would suggest a suitable asset allocation plan for you. Asset allocation refers to the amount that you should invest in various asset classes such as equities, debt, gold and real estate.
DO YOU NEED THE PRODUCT?
Before investing in a product, ask yourself whether you really need that product. Every financial product meets a particular need and hence every product is not meant for everyone. For example, a monthly income plan (MIP) of a mutual fund is meant to give a regular monthly income to the investor. A fixed deposit is meant to protect capital and so on. So an MIP may be suitable for a retired person with a low risk. However, for a 25-year-old person, with no liabilities and a five-year-plus time horizon for investment, it may be wiser to invest in equity mutual funds.
ENTRY AND EXIT
Investors spend a lot of time trying to time the market. "When we meet investors, the question asked is 'it the right time to invest'," says Vijai Mantri, MD and CEO of Pramerica Mutual Fund. It is impossible to time the markets and this is one reason why he feels a lot of retail investors did not make money though the markets have seen a sixtime jump from 2003 levels.
It would be wise to use Systematic Investment Plans (SIPs), as that helps you invest over a period of time.
CHOOSE PRODUCTS CAREFULLY
Buying a financial product is not like buying goods off the shelf. Once bought you can't discard them quickly. Choosing a wrong financial product could have long ranging financial implications. Don't buy equities, if you have to buy a house six months down the line and need all your savings to pay the initial instalment.
    Once you decide the asset class you need to invest in, you must choose the right 'service provider'. If it's a mutual fund that you are looking at, there are 40 AMCs today in India offering various schemes. You could look at things like reputation and experience of the fund house, the reputation of its fund management team and the past performance of its schemes before buying a product.
CHOOSING THE RIGHT DISTRIBUTOR
A financial planner is your guide in the financial jungle. It is impossible for any individual to track all asset classes at the same time, due to the sheer lack of time and resources. Hence it is best to choose your financial planner wisely. A financial planner should be able to understand your needs and should be able to offer you products from the entire investment basket. You must be comfortable with your financial planner. He should be able to devote time to your portfolio and must be well-versed with the happenings in the financial markets. Choose a fee based advisor over those who are paid by the product manufacturers. The advisor or the organisation should offer you convenience in both online as well as offline trading facilities.
    prashant.mahesh@timesgroup.com