Are you being Penny wise and Pound foolish?

Are you being Penny wise and Pound foolish?

I have been conducting financial wellbeing camps at corporates for a few years now, and a couple of questions invariably crop up at the end of the session.   One, can you give us a few good MFs to invest in?  Two, what about investing in direct plans, they are cheaper right?  Three my advisor doesn’t call me frequently to review my funds, shouldn’t he be?

Three questions which sound very different from each other, but are connected to the need of the customer to have access to expert advice so that they can follow a DIY approach to investing.  This is natural and a good thing even, when the person concerned has adequate time and knowledge to use this information for his benefit.  This is where many of them overestimate their ability and have perfect reasoning too. Let’s dwell deeper into each of these questions.

Can you give us names of a few good MFs to start investments in?

This is a very difficult question to answer, without having any other details.  Typically, before recommending an investment to someone, we need to know what is the purpose of investment. This gives us advisors two important data points, which are

  1. The importance of the goal
    • can you postpone it without grave consequence? Example. foreign trip. The same may not be true for child education.
  2. The time available for investments
    • This is crucial to understand as well, to enable making the decision of whether to invest in equity or debt

What about investing in direct plans?

This is a good way to invest, and yes, it is cheaper to go for direct plans.  This comes with a condition though, only and only if you have the knowledge and time to devote to this. Many HNIs and corporates use direct plans, but they have no problem paying a professional for advice and recognise their limitations in being effective without advice.

 Unfortunately, this is not true for most retail clients, where paying a fee for advice is not an easy decision.  As they say there are ‘no free lunches’, if you read about a particular investment on media it may be relevant today, if you invest and forget to check its relevance on a periodic basis, you have no one but yourself to blame. In such a situation, the money saved by going direct may not be worth it when you could have had a financial advisor to guide you and put your interests first and review your investments on a periodic basis for such risks.


My advisor doesn’t call me?

 I meet someone who said “my advisor never calls me to review my funds or with suggestions”.  In the course of the conversation, I realised the client had invested funds for which the compensation to the distributor was a few hundred rupees (this info is readily available in the consolidated statement received by investors every month from NSDL/CDSL).  His expectation of having a review and constant interactions were therefore not in line with what was feasible.

Note though that even if he had invested substantial amounts, constant conversation and change is not required. Investing (once done post adequate due diligence) is very boring and as long as you or your advisor is monitoring it periodically, there is no need for constant action. Hence, it is better to get clarity on the nature and frequency of interactions when you sign up for advice.

The value added by good advice goes much beyond helping you choose a scheme to give you returns in line with your needs. It is more holistic in nature and helps you solve your financial puzzle.  You will be guided through turbulent times, because remember, investing is going to be volatile. Your advisor will be able to temper your expectations so that market down turns are not a shock it can otherwise be. Another important aspect where a good advisor adds value is assess your risk appetite and tailor your investment plan accordingly.

How do I find such advisors you ask?  Interact with them to find out how the advisor plans her own finances, and ask them the above questions. If they answer with a string of names for the first question, they are not the type of advisor you are looking for. Understand how often you would be interacting, and how they would be getting compensated. Also, check which category you would figure in their current list of clients, these questions should help you zero in the right person for you.

Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at or +91 9870702277/9820818007.

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