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By:

Kaustubh Kale

10 September 2024 at 6:07:15 pm

Four Methods to Choose Investment

One of the most common questions investors ask is: “Which investment should I choose?” The real answer is that no investment is good or bad in isolation. A simple way to judge any investment is the RRLT framework - Risk, Return, Liquidity and Time Period. Before investing in any product, all four factors should be seen together. 1. Return Return is the reward you expect from the investment. It may come in the form of interest, dividend, capital appreciation or regular income. Naturally, every...

Four Methods to Choose Investment

One of the most common questions investors ask is: “Which investment should I choose?” The real answer is that no investment is good or bad in isolation. A simple way to judge any investment is the RRLT framework - Risk, Return, Liquidity and Time Period. Before investing in any product, all four factors should be seen together. 1. Return Return is the reward you expect from the investment. It may come in the form of interest, dividend, capital appreciation or regular income. Naturally, every investor wants good returns. However, return should be understood properly. It is important to look at the real intrinsic / internal rate of return (IRR) of every investment, especially when cash flows happen at different points of time. A product may sound attractive on the surface, but the actual return may be very different when calculated correctly. 2. Risk Risk is the possibility of losing money whether partially, fully, temporarily or permanently. In some investments, the risk is very low. In others, the value may fluctuate significantly in the short term. Direct stocks, equity mutual funds, gold and real estate can create wealth over time, but they need patience and the ability to tolerate ups and downs. On the other hand, fixed income products may offer stability, but they may not beat inflation over the long term. 3. Liquidity Liquidity means how easily you can convert your investment back into money when required. A savings account is highly liquid. Fixed deposits, mutual funds and stocks are reasonably liquid. Real estate may take time to sell. Liquidity matters because emergencies do not come with advance notice. Before chasing returns, every investor must ensure that enough money is available in liquid instruments for short-term needs and emergencies. 4. Time Period Time Period is the most important filter. The investment product should be selected based on when you need the money. If the money is needed within a few months or one to two years, safety and liquidity matter more than high returns. If the goal is ten, fifteen or twenty years away, growth-oriented assets like equity mutual funds, direct stocks and gold-related instruments can play a larger role. The longer the time horizon, the better your ability to handle short-term volatility. Goal-Based Planning This is where proper financial planning becomes useful. Make a table of your financial goals - home purchase, car, vacation, child education, child’s marriage and retirement. Write the amount required, adjust it for inflation and mention the time left for each goal. Once this is clear, choosing the right investment becomes easier. Investment Avenues Broadly, investment avenues can be divided into two categories - those that help beat inflation and those that mainly provide stability. Equities, equity mutual funds, gold and real estate help in long-term wealth creation by beating inflation. Your long-term financial goals should ideally be invested in this bucket - the one that helps your money grow faster than inflation. For your short-term goals, rely more on bank fixed deposits, recurring deposits, and debt mutual funds. Here, safety and availability of money are more important than high returns. A good investment is not the one that sounds exciting. A good investment is the one that fits your goal. So before investing anywhere, remember RRLT - Risk, Return, Liquidity and Time Period. When these four are aligned with your financial goal, investment decisions become much clearer. (The writer is Chartered Accountant and CFA (USA). Financial advisor. Views personal. He could be reached on 9833133605)

Relief as Maha yanks off diktat

Mumbai: Providing a huge relief, the Maharashtra government has yanked off the contentious ‘One State, One Uniform’ policy for schools in the state, earning pats from academics and parents alike.


The state education department has announced that the local School Management Committee (SMCs) shall now decide the colour combination and designs for the children attending their schools.


The move has been welcomed by school associations and parents alike, with demands for more reliefs to over 10-lakh students who have secured admissions under the RTE Act in the state.


In its fresh GR, the education department has allowed the SMCs to decide on the colour-design, stitching-distribution of uniforms for their respective schools as per the prescribed policy, as it was done earlier for decades.


Last December 2024, the government had mandated the SMCs to manage the process locally without changing the colour-design of the uniforms, as per the policy that was implemented in the current (2024-2025) academic year.


The students attending government schools in the state are entitled to free uniform sets under the state-centre’s jointly-funded Samagra Shiksha Abhiyan (SSA).


The GR has cleared the path for the SMCs to continue the process as before for which funds shall be provided on time for the regular uniforms as the Scouts & Guides uniforms, ensuring good quality fabric that is not fully polyester and doesn’t cause health problems to the pupils.


It has warned of surprise checks on the quality of the uniform, and in case quality defects are detected, the SMC shall be accountable.


Flawed policy

Maharashtra English School Trustees Association (MESTA) Founder-President Sanjay Tayade-Patil said that the policy (initiated by former school education minister Deepak Kesarkar) was flawed, bypassing other more important requirements.


“Economically backward students admitted under the RTE policy are not getting free uniforms, books, shoes and other requirements, in many schools they are also deprived of the midday meal schemes. The government should takle this discrimination on priority,” Tayade-Patil told ‘The Perfect Voice’.


A school Trustee, requesting anonymity said that many schools did not get the promised uniforms till the Diwali vacation and students had to make do with whatever was available, besides widespread complaints on the fabric quality, poor stitching, uneven size, rendering them virtually un-wearable.


Welcome decision

A Mumbai housewife, Neelama Joshi, whose two minor children attend a Marathi aided school, expressed a similar grouse, saying she was forced to stitch and re-stitch her kids’ uniforms almost every fortnight, and the fabric would easily tear.


Other bodies like the Maharashtra School Principals Association, Maharashtra State Primary Teachers Association, Maharashtra Unaided Schools Association have hailed the government’s move saying it will restore the autonomy of the educational institutions.


“This would also bring back the unique ‘uniform identity’ of the children of the respective schools, particularly in areas where there are clusters of such educational institutions, help the school-bus drivers and parents distinguish their kids by their uniforms,” said a retired school headmistress, Usha S. N. of Goregaon.

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