There are various kinds of products present in the financial world. The number of products is actually increasing as variants and choices keep pouring in for the people. However some of these products are difficult to understand and can result in a halt to the entire process of investing.
This makes the entire decision making process difficult, calling for change in approach to deal with the situation.
Product labelling gives information about the product. The process involves classifying various products being offered in different categories as being either simple or complex for them to understand.
The number of distinctions created depends upon the final decision regarding the selection process and hence this can vary quite a bit. Once the product is labelled, an investor can look at it and understand the complexity that comes with it.
Understanding the nature
The important thing is to understand what the different labels actually mean and how they are to be considered for the purpose of looking at a product.
The very term should evoke an image in the minds of the people and they can then refer to the products accordingly. For some products that are complex there is help from experts that investors can seek to get to know the finer points better so they can make their decisions accordingly.
Change in label
An important thing in the entire process is that once a particular label is made for a product this does not remain the same for the entire life of the products. As people get familiar with the products and they begin to understand the concepts that are applicable, then the products can move from one category to the other. This also means shifting the nature of the classification so that people can understand and use them better.
This will also promote the development of the market in the country so that it becomes accessible for a larger number of people.
Over a period of time, this situation will help in building up a knowledge base as well as create an entire army of investors who are better informed of the position in the market. This will mean that there is better understanding of the overall position and the way in which choices are made so that there is no confusion about the benefits present. Overall this is a part that aids the development of the capital markets in the country.
(The author is a certified financial planner)