Investing Uncomplicated - I Wish !

It's a wish that's been every investors wish for long. 

Should ones money work hard? obvious answer " yes" but question is how to make it work ? " Invest it and make it work" quite simple. If you think its that simple , probably you are the next whiz .

I wouldn't consider myself an active investor however over the last few months I have been spending lot of my time understanding which products to invest and its not only for me but the aim was to understand and see if i can pass on the knowledge - Strictly not Financial Advising but just information.

Given that we live in the Internet age creates one of the many problem , I.e. information overload. 

When I kicked off my preparation it was hard to navigate through the maze of information. Sitting like a lame duck, I just couldn't get to grips with what I wanted to do. 

First question on my mind , which product/s to invest in? 

With this question in mind , I scouted for various information to help me out. Starting the information barrage was the age old adage " don't put all your eggs in one basket" holds good in investing as well , simply said that "Diversification" is king! Which seemed to be a fair call, but over diversify one tends to loose more than gain.

This now complicated things a step further , diversify but how and what? 

Further mining and understanding led me to a phrase " Risk Appetite & Profile" I.e. investing and it's residual components are dependent on individual circumstances and ability to assume risk. 

That sounded about right , everything in this world is driven predominantly by personal preferences & situations , so investing should be no different. 

Meticulously I sat down to prepare on what I needed to invest in & made some rough notes on products which might help. 

1 Equities 

2 Bonds 

3 Funds 

4 Commodities 

5 Real Estate 

 OK, that was a good start, what should I consider per product came next. 

Equities 

Investing in this asset class has been made simple by the advent of demat form of holding the shares and online trading . Shouldn't this been simple then to dive in and put your money in ? Well if only it was well simple. Here I called upon my better half's assistance , being masters in finance, I had asked her for assistance. 

Her first question , which broker do you want to trade with ? Aghast I asked why would that matter , she simply said service & commission. I was becoming tired by now, however with further encouragement and the need to understand I plodded on . 

Working through enormous amount of paper work , we finally chose a big financial house offering brokerage services. 

Next came the stocks to choose . I was by now loosing patience . My better half poured over few companies we choose , she came up with various numbers . 

• P/E 
• EPS 
• CEPS 
• ROCE 
• Dividend Yield 
• Management Value Add
• Business Outlook
• Sector Outlook
• Economy Outlook on sector operation outside home country

Combined with the above , we had one more ingredient to add " Instinct" to it to make the concoction before choosing some of the stocks. Phew , that was just a kick off.

Didn't bother getting into understanding Fundamental or Technical analysis in detail. 

 Fixed Income 

Our fixed income market is still shallow , although IDBI has launched its samriddhi web portal for retail bonds,but one cannot trade all government securities in question , at the time of our investigation, there were only handful of securities on offer . The corporate bond market is even more shallow, making it extremely hard to invest directly. This Asset class is my favourite but we had to skip this altogether

 Funds 

This was an absolute monster with plethora of choices .

With opening up of the markets , we now had options to invest in

1. Mutual Funds
2. OEIC
3. SICAVs
4. Investment Trusts
5. Fund of Funds

There were numerous literature's about the fund industry and the underlying intricacies .

Difficulty was which one to choose , this has now been left open as we are still studying the market.

The place we have started at the moment is the BSE Morningstar website , which has been launched by BSE as a part of the investor education series .

One thing which i did learn was TER - Total Expense Ratio of a fund can actually diminish returns, am still trying to comprehend what this means in real terms and make my mind up.

In the mean time i have been pouring over a book about exchange traded funds , understanding the nuances of this latest piece of financial engineering pioneered by American Stock Exchange just around the turn of 2000's.

A clear indicator seem to be the fact the mutual funds and investment trusts perform poorly compared to  ETF's and fund managers add to the overall cost of managing the funds.

If that was not enough , ETF's have their own pit falls i.e. one has to understand how the index tracker or the ETF is constructed, if its physical replication then the tracking error could be minimal but if its sample sized based creation then the tracking error could magnify and diminish returns. If its a swap based tracker or a ETF then the return could be guaranteed but it could well mean that there is a counterparty risk.

Oh my god why doesn't some one make it simple...

Commodities

An Inflation busting asset as its often called, commodity is seen as a the darling i.e. queen of all assets . Its predominantly driven by supply demand factors err that's strictly not true.

The question on commodity investing is 

1 Do i invest in physical commodity

2 Do i invest in a commodity mutual fund

3 Do i invest in Exchange Traded Commodity 

My research has so far pointed to ETC because its much easier to invest without the necessity to actually worry about holding the physical asset.

Real Estate

Still Researching on this sector but looks very likely i'll drop this all together .

Not to rule out fixed deposits which might be safe haven

Oh i forgot the big daddies " Income Tax" & " Capital Gains tax " 

Well that's complicated enough for now !

Most of the countries in the world both developed and emerging markets have taken steps to step-up investor education programme , having said that there are still a lot of unknowns .