The Truth About Investment Management Revealed

Investment Management is way simpler and easier than it is made to be looked at by the giant institutions and their stakeholders in the Financial Service Industry.

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If you are someone who thinks or is made to think that Investment Management is too complex and requires too much expertise, then read this. I promise to simplify Investment Management in an easy to understand words. Let’s start with understanding what Investment Management is.

What is Investment Management?:

The word Investment refers to putting your savings or surplus/unused money to work for you. Management is planning, organising, executing, and controlling resources to achieve desired results. Hence Investment Management is a process of managing your savings by investing it in different investment products, called a portfolio in order to achieve financial goals which are important and inevitable.

Myths About Investment Management:

Now that you know what Investment Management is, let’s bust a few prominent myths about Investment Management.

Investment Management is for HNIs:

During my career in the Financial Service Industry spanning more than 15 years, I have observed that about 4 in 5 people think that Investment Management is for High Networth Individuals who earn in Lakhs and Crores and have a huge surplus to invest in.

Contrary to this popular belief, Investment Management is for each and every person who is earning money and who wants to live Stress-Free Financial Life. Furthermore, you can start the Investment Management process with whatever surplus money you are having. Not enough money should never be an excuse to start something which would yield tremendous results for you in the future.

Investment Management is Time Consuming Activity:

One of the biggest reasons why people avoid Investment Management is that they think it is too complicated and requires too much time and effort. You know what achieving anything worthwhile in life requires time and effort. Investment Management is no exception.

However, the time and efforts required are exaggerated. If you can allot 5 minutes a day, 10 minutes per week, 15 minutes per month, half an hour per quarter, and an hour per year, you are good to go. Further, your patience plays a more vital role in your investing success than the time and efforts you put in.

Investment Management Requires Expertise:

Sachin Tendulkar, Virat Kohli is an iconic batsman. They are the experts. However, that does not mean that You and I can’t bat and play Cricket at all. If we know the basics of Cricket and batting, we can obviously play the game.

Similarly, if you get familiar with the basics of Investment Management, you too can start your Investment Management to achieve your desired Financial Goals. A little guidance and timely intervention from an expert as and when required would help you maximize the returns or lessen the time required to achieve your financial goals.

You Need to Time the Market:

‘Is it the right time to invest?’ is among the top 3 questions I have been asked till date. This is simply because of the prevailing myth that there is a right and a wrong time to invest. Market dynamics are dependent on too many interrelated as well as unrelated factors beyond anyone’s control to predict with 100% certainty.

In such a scenario there has to be the North Pole, a guiding light to ease the decision-making process.  Your Financial Goals are that guiding light that helps in framing the strategy. Your goals and Strategy would steer you through the market turbulence.

Past Performance Guarantee Future Returns:

Public Provident Fund (PPF) used to give 12% interest during the 1990s. Now it’s yielding around 8%. Even a Central Government-backed investment does not replicate its past performance, how can one expect to get similar future returns to their past returns from other investment avenues.

What to expect then? Well, basic knowledge of how investments work along with the strategy formulated based on your financial goals would be handy here. Of course, you can infer a few references from the past performance, just like we look into the rear-view mirror while driving the car. Just use the past performance like we use the rear-view mirror of the car, not more than that.

Prerequisites for Investment Management:

Now that we have cleared the air around important misconceptions about Investment Management, let’s discuss a few aspects that need to be there before starting the actual Investment Management. Below are the 3 most important aspects to focus on.


Having the right mindset for your Investment is crucial. Simply because of the fact that anything and everything is created twice. First in mind and then only in reality. Having known this fact, the obvious question would be, how your mindset is going to affect Investment Management?

When it comes to the mindset about Money and Investments, people can be divided into 3 categories.

  1. People think of money as a tool to meet their necessities.

  2. People who believe money is a tool to buy comfort and luxuries.

  3. People who use money as a tool to create wealth and abundance.

You can decide which kind of mindset is going to yield the desired result for you and with which mindset you want to approach your Investment Management.

Financial Goals:

Money can’t be consumed in it’s purest form. Money is just a tool to achieve your and families’ dreams, aspirations, desires, wishes. So it’s obvious to set worthy financial goals.

As mentioned earlier, these goals would act as the North Pole during uncertain times easing the decision-making process.

Retiring early or with X amount of Money, sending your kids to a top University/College in India or abroad, having a grand marriage function for your daughter, buying your dream house at a particular locality/city, a world tour, etc. are some of the common examples of financial goals. It is of utmost importance to set your financial goals before you start your investment journey for the above-mentioned reasons.

Surplus Money:

Investing itself means deploying your surplus money to generate some form of reward for you or putting the surplus money to work for you. So, having surplus money is the other prerequisite for Investment Management.

Don’t worry even if you are not having surplus money to invest. Anyone or a combination of the below 3 hacks would help you have surplus money to invest.

  1. Switching from ‘Income – Expenses = Savings’ equation to ‘Income – Savings = Expenses’ equation.

  2. Increasing your income by optimizing all the resources available to you.

  3. Tweaking your spending habits to eliminate avoidable expenses to have surplus money.


Now that you have the right mindset, set your financial goals, and have surplus money to invest, let me throw some light on what you should know about investment. Don’t worry, I won’t be throwing any jargons like the professors in the movie 3 idiots. Instead, I would be simplifying stuff for you like ‘Rancho’.

Furthermore, you don’t need to know every technical aspect of investment to start and succeed in Investment Management. All you need is a basic understanding of various Asset Classes and Investment Risks.

Asset Classes:

Below are the 5 Asset Classes based on risk, return, and other comparable features.

  1. Cash and Cash Equivalents: This asset class represents liquidity and buying power. Any form of money that can be consumed instantly is classified under this asset class. Cash itself, Money in Savings Bank Account, etc. are examples of this asset class.

  2. Equity: Equity represents ownership into a business. Investment in stocks and equity mutual funds are a few examples of investment in the equity Asset Class.

  3. Fixed Income: As the name suggests this asset class delivers predictable returns. It is like lending money to earn the reward. Bank Fixed Deposits, PPF, NSC, etc are examples of Fixed Income Asset Class.

  4. Real Estate: It is ownership of physical space like buildings, land, plot, etc.

  5. Commodities: This represents ownership of goods which has end-use. E.g. Gold, Silver, Crude Oil, Corn, Wheat, etc.

Any investment product/avenue, anywhere across the world falls under any of or any combination of the above-mentioned Asset Classes. Each of these Asset classes has its own advantages and disadvantages and no one is good, bad, better, or best. You need to make the most of each one to reach your financial goals.

Investment Risks:

After knowing the Asset Classes, let’s discuss prominent risks that are inherent with any investment.

  1. Market Risk or Volatility: It is nothing but a constant change in price on a daily basis. E.g. You buy a flat for Rs. 50,00,000. After a few days, the price decrease to Rs. 45,00,000 for factors beyond your control. This is called Market Risk.

  2. Default or Credit Risk: Suppose you are giving Rs. 5,00,000 to your friend and he does not return you the money. This is referred to as Default or Credit Risk.

  3. Interest Rate Risk: You have invested Rs. 2,00,000 in a Bank Fixed Deposit for 3 years @ 6% per annum. 3 months down the line RBI revises the Interest Rate and the same Bank is now offering 6.5% per annum interest on a 3 year Bank FD. This is called Interest Rate Risk. It’s because of a change in the prevailing interest rates.

  4. Inflation risk: When I bought my first bike back in the year 2003, the petrol price was Rs. 30 per liter. Currently, it is Rs. 80 per liter. Back in 2003, with Rs. 100 I was purchasing over 3 liters of petrol whereas today I would be getting a little over a liter. If I need the same 3+ liters of petrol today, I would have to pay about 250 Rs. This reduction in purchasing power because of the rise in the price of goods & services is called Inflation Risk.

  5. Liquidity Risk: You have invested Rs. 50,00,000 in a flat. A couple of years later, you need Rs. 15,00,000 for some reason. You are willing to sell your flat, however, there are no buyers. This is called Liquidity Risk. Risk of not getting your money back with ease at short notice.

  6. Concentration Risk: You and I both know that in India out of 543 Assembly Seats whichever political party wins at least 272 seats, forms the government at New Delhi and governs the country. It has complete power to frame and implement various policies. Similarly, if your investment is tilted towards a particular asset class, that asset class would dictate your investment results. This is referred to as Concentration Risk.

Exchange Rate Risk: Volatility or fluctuations in currency rates e.g. USD & INR or EURO & INR poses an altogether different risk to your investments. It is more pertinent and direct in effect if you are investing abroad otherwise the indirect impact is felt but to a lesser extent.


After having the right mindset, defining the financial goals, having the surplus money, understanding the basics of Asset Classes and Investment Risks; now is the time to formulate the strategy. Your Financial Goals would play a pivotal role in formulating your Investment Strategy.

No. of Asset Classes:

The first strategic decision you need to make is deciding the number of Asset Classes you want to spread your investment across. This would help you make the most of every Asset Class minimizing the impact of investment risks pertinent to one asset class.

Apart from the number of asset classes, you need to decide on exposure to each asset class too. This is referred to as Asset Allocation or Portfolio Diversification. Not putting all the eggs in one basket. E.g. Equity, Fixed Income, and Gold portfolio with 45%, 40% & 15% share respectively or Equity and Fixed Income portfolio with 65% & 35% exposure respectively.

Fixed or Dynamic:

The exposure to each Asset Class you have decided is fixed forever or it would change periodically depending upon the prevailing market dynamics? The former is called the Fixed Asset Allocation Strategy while the latter is referred to as Dynamic Asset Allocation Strategy. Answering these questions here, right at the beginning would ease the future decision-making process.

Rebalancing Strategy:

Once you have invested your surplus money in the chosen asset classes with the desired exposure, the money would start working for you and generate some returns. Different Asset Classes generate different returns. Hence it would change the exposure to various asset classes from the initial exposure level. Now, how often you want to bring exposure to various asset classes to the initial or the desired level depending upon the Fixed or Dynamic Asset Allocation Strategy you are following is called the Rebalancing Strategy.

You can choose to rebalance your portfolio once a year, once every two years, twice a year, every quarter or every month, or even never. It’s up to you to decide but at the planning stage itself to avoid confusion and temptations at later stages.

Product Selection:

Now is the stage to choose the investment products. If you have diligently formulated your asset allocation and rebalancing strategies, then product selection is just a cake-walk. The strategic decisions would help eliminates many products leaving few choices only.

E.g. if you have opted for an Equity & Fixed Income asset class with 70:30 dynamic allocation with twice a year rebalancing, Bank FDs with tenure of more than 6 months, PPF, NSC, etc would not even qualify for consideration. This makes the selection process very soothing to the extent that the products select themselves.

The Exit Plan:

As mentioned earlier, money is just a tool to achieve your goals, aspirations, and dreams. We have termed them as Financial Goals in this entire Investment Management process. So, whenever you would reach near to your financial goal, you would want to liquidate your investments and need cash to turn that dream into reality, (e.g. sending your son to Harvard University).

You need to put the exit plan or the manner in which you would liquidate your investments well in advance, preferably at the planning stage itself. This clearly thought out exit plan would help minimize the impact of a few investment risks. E.g. Market or Volatility risk if you stay invested in equity till the last moment.


Every person who wants to turn his and his family’s dreams and aspirations into reality should look to Investment Management even if he/she is not earning in Lakhs or Crores. One does not have to be a Warren Buffet or an IIM graduate to start Investment. All one needs is the right mindset, surplus money, few financial goals, basic understanding of asset classes & investment risks to formulate the strategy and achieve the goals. 

Do let me know your 3 key takeaways or what you think about Financial Freedom in the comment box.


To Your Financial Well-being,

Jiten Modi.

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