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Investors should not ask about returns

india Updated: May 19, 2013 23:37 IST
Dhirendra Kumar
Dhirendra Kumar
Hindustan Times
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No matter how much investors would like to know, for many financial products they should not be asking how much returns they will get.

A few days back, I read a column on a financial advise website whose title was ‘That’s all fine, but what return will I get’. The author said that the questions that investors were asking and the answers they were geting have diverged a great deal. As the title says, the thing that investors want to know is what returns will they get. However, what they are told by advisors is a lot of stuff about the investment process itself, which doesn’t give them the answer to the question they want answered.

Of course, this is a universal problem and as an investor you must have faced it too. Financial advisors in different systems solve it differently. In that article, which was from the UK, the idea was that something called structured products was the solution. In India — and elsewhere, I’m sure — some salesmen’s idea is to quote a number that is likeliest to close the sale while not being acommitment.

Even so, this is one situation where I think the fault lies with the investor. If you want to know what return you will get, stick to financial products where you are given an enforceable commitment, in black and white. Which means fixed deposits in banks, various small savings schemes run by the government and the post office and so on. Asking for an estimate or an informal promise on returns from any product that is inherently linked to a market — be it stocks or anything else — is inviting trouble. Either, you won’t get an answer or you’ll get a dishonest answer, simply because no real answer exists. In fact, if a salesman is willing to give such an answer, then that itself indicates a problem.

If you are planning to invest in a mutual fund, or any other market-linked financial product then the process that is followed and the earlier track record is actually the best you have — no matter how hard is it to get used to the idea.