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25 September, 2022 14:08 IST
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The biggest risk while investing - Play of emotions: Shantala Kumble

Source: IRIS (25 December 2009)

The biggest risk while investing - Play of emotions: Shantala Kumble
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In an exclusive interview with Yogita Khatri of myiris.com, Shantala Kumble, head- insurance division at International Money Matters talks about importance of wealth management and its scope.

Shantala Kumble is a certified financial planner (CFP)CM, IRDA-Certified Life Insurance Consultant and a certified Cost Accountant, with 14 years of work experience in the financial services industry. Currently she heads International Money Matters` insurance division and brings in much needed objectivity, practicality and logical thinking. She has been involved in most of the educational and training projects carried out at International Money Matters.

> What, according to you, is the process of wealth management?

The scope of wealth management is vast. It includes financial planning, tax planning, insurance planning, estate planning & of course investment planning. The idea of wealth management is to ensure that a person`s financial goals (aspirations) are met with his current financial situation and by working in the right direction.

> In India, when it comes to wealth management and financial planning, people do lack initiatives. Why is it taking long for these concepts to gain popularity in India? How long will it take for these concepts to pick up momentum?

People earlier did not plan for their finances as there was a joint family system. With the nuclear families concept gaining popularity, it becomes very important for one to plan his retirement, children`s education etc. In India, there is not much focus on financial education for people to manage & invest their money smartly. Efforts have been started in this field and we expect it to only gain more ground in the near future.

> Most of us think that we don`t have enough money to do financial planning. According to you, is it the ``time`` or ``money`` factor that prevents people to go for it?

It is neither of the two; it is just the lack of understanding of the importance of financial planning. For example one would understand the need for medical insurance when one suffers and ailment. At that stage he would be willing to pay any amount to get a health cover no matter how busy he is or how much of financial constraints he has. Unfortunately it would be too late for him to get a cover at this stage. Similarly if one realizes what issues could be faced if a financial plan is not in place, one would make time and money for the same

> In today`s fluctuating market conditions, what`s been the most common reaction from your clients?

Ones` investment avenue should be strictly chosen based on the timing of the goals. It is a human psychology unless you either are a seasoned investor or going by what your financial planner says, to become pessimistic when the markets are falling and quite often your investment horizon which is long term, tends to become short term. Most investment mistakes happen at this stage when you tend to withdraw or invest moneys from/ in the markets at the wrong time without focusing on the objective of such investment.

> What is your outlook for life insurance industry in India?

More and more players are entering the market with competitive pricing and customized products. The industry has definitely progressed from insurance being a tax saving option to be looked at in the month of March every year to people actually approaching insurance from a savings and protection point of view.

With IRDA becoming active on regulating the norms on charges more transparency can be seen among insurance companies in terms of declaring the charges and returns. Regulation on the commissions to a great extent shall prevent the misspelling that is happening in the market.

> How important is estate planning and how does insurance fit into one`s asset allocation?

Insurance planning and estate planning are two most important subsets of a financial plan. It is important to first cover the risks before one starts saving for the goals. Similarly if an estate plan is not in place, whatever one leaves behind may not be distributed in the manner that one wishes.

Psychologically as well, volatility does not seem to affect an investor as much with respect to an insurance policy as much as his investments in mutual funds. It thereby helps in systematic investments towards a goal, without worrying about the market volatility.

> What is your advice to the insurance seeker particularly in the backdrop of increasing volatility in the markets?

Our advice to an insurance seeker is irrespective of the trend in the markets, insurance stands at the top of the priority list. Depending upon the liquidity of the entire portfolio and nature of the requirement of insurance, products are suggested. Any liability protection or expense protection are generally covered by pure risk policies where as goal protection may be done through unit linked policies. And since these are generally for longer term in nature volatility should be of least concern to an investor.

> How often would you suggest reviewing and rebalancing a portfolio?

Would suggest reviewing and rebalancing a portfolio in the following circumstances:

1) When the goals have changed.
2) When the asset allocation has changed by more than 15% to 20%

It is always advisable to relook at the whole portfolio at least twice in a year if there has been any change to any of the two scenarios mentioned above.
 
> What are the risks that one should be aware of while investing?

The biggest risk one should be guarding oneself is the play of emotions while investing. Investment vehicle should be strictly chosen based on the time horizon in which particular goal needs to be achieved. In a dynamic scenario like the ones we are currently in, change in allocations to the portfolio need to be done based on several factors like economy, inflation, fund house performance, scheme performance, change in fund managers, change in tax laws etc. Hence making investments without taking into considerations any of these is a risk.

> What is your view on the current market scenario? What are the risks an investor should look out for in 2010?

I do not believe in market predictions; hence will shy away from giving views for 2010. If the corporate results are good, we should expect a good year ahead; there may be volatility, but use dips to invest rather than panic. International news may also have an impact on Indian equities. Stick to fundamentals and invest systematically should hold you in good stead.

The risks are associated with the markets, with the instruments (mismatch of goal and product used to meet it) and being too conservative or aggressive is also a risk.

While investing in equities one should stay invested for the long term (at least 3- 5 years) and look for returns around 15-18% p.a. which would be reasonable. For achieving a particular goal, ensure you have a diversified portfolio, so that any hit on a particular asset class does not force you to change your goals.

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