Debunking Risk Series
Mismatch Risks
Aligning financial goals with investments is important for generating
optimum returns from investments
I
properties, and a few shops. Out of `5 crore, only
about `25 lakh of investment were liquid in the form
of bank fixed deposits, shares, mutual funds, etc. Rest
were all in illiquid form, indivisible real estate. They
had called me because they needed `47 lakh to fund
their daughter’s forthcoming education abroad. They
had two choices, either to take an education loan or
liquidate portion from their real estate property, which
was approximately costing `90 lakh. Hence, there
was an apparent mismatch between their financial
goals and investments.
Most of us never spend time to make an appropriate
list of our financial goals; the financial goals for which
we are saving and investing money. Due to this habit
we are unknowingly exposed to mismatch risk.
All of us want to invest in instruments which generate
higher, faster, and maximum
returns. Now consider this,
between an airplane and cycle
which will move higher and
Most of us never
faster? The obvious answer is
make an appropriate
airplane. However, if we want to
go to a place that is 3 km away,
list of our financial
which one should we opt for
goals for which
between the two? Everyone will
agree for cycle.
we are saving and
Always focus on optimum
investing money. If
returns and not on maximum
returns. What is the point in
investment is not
generating maximum returns if
aligned to a financial
they are not of any use to you
when you need them? Everytime
goal, unknowingly
we invest, we should ask
we are exposed to
ourselves which financial goal the
investment is for? If investment
mismatch risk
is not aligned to a financial goal,
unknowingly we are exposed to
mismatch in risk.
n the month of May, I was
returning from Ahmedabad
in Duronto Express, which
is a non-stop train between
Ahmedabad and Mumbai. One
of the fellow passengers wanted
to get off at Borivali. However, he
did not know that train does not
have a stoppage at Borivali. He
had two options—either to jump
at Borivali, which was obviously
a riskier option, or to travel upto
Mumbai Central and return to
Borivali from there. He opted
for the second option. He had
to make arrangements for going
back to Borivali; his time got
wasted, money spent, and energy
drained. There was a mismatch
between the station he wished
to get off at and the train he
had chosen.
Most of us end up making similar mistakes while
investing. Several years ago, a middle aged, well off
couple called me from a small city in Gujarat. Apart
from the bungalow they lived in, total value of assets
they owned was about `5 crore. This mainly consisted
of real estate in form of plot of land, two residential
Gaurav Mashruwala
(Financial Planner & Author
of Yogic Wealth)
[email protected]
www.outlookmoney.com December 2017 Outlook Money
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