A SOLUTION TO THE INVESTING PROBLEM

Mutual funds offer a simple and convenient approach to investing that can help you turn uncertainties into opportunities to reach your financial goals

- NARAYAN KRISHNAMURTHY

Swinging stock market indices, earnings pressure, rising inflation, new investment opportunities, depreciating rupee and economic slowdowns are problems that most investments face routinely. Often, investors are not very sure of how to approach and address these problems to avoid panic decision-making with their investments. Investing is as much in the mind as it is in the financial analysis and, at the end of the day, most investors are looking for the best ways to ensure long-term wealth creation and returns on their investments that earn them a profit.

So what is investing? If you ask around, the chances are you will get definitions that are right while not easy to comprehend. The most common description of investing would involve earning profit by deploying money. Profit could be by way of interest or growth in the value of money. But dig deeper, and investing is about using complex information such as current interest rates, GDP, economic policies to decide how much money you will put in which financial instrument so that it grows in value at a later date when you need it for your child's education or your retirement or some such tangible outcome.

Solving the investing problem is neither simple nor straightforward. Investors would do well to think of investing as a problem-solving exercise and not a problem in itself. To successfully solve this problem, you need to develop an approach and manage several aspects associated with investments. There are instruments in which you can invest when the interest rates are rising, there are instruments in which you can invest when the markets fall, there are asset classes in which you can invest to minimise investment risk, and so on. For a lay investor, many of these aspects may appear to be incompatible.