Investment – Diversification approach

Every individual life with a future hope. Some aspirations, requirements, needs, wants, goals, etc. keeps pumping the need of saving. Saving is not just enough in the developing nations where the inflation swells on day to day basis in the economy. The investment becomes vital and unavoidable, either in high risk areas such as share market or in guaranteed areas like fixed deposits in nationalized banks or in normal saving accounts.

The investment strategy is not as simple as it appears. A big gambling is underneath of this game. Some may float and others may sink. But we can make a bit duckling though we cannot swim across. In this present digital-competitive world, many options and attractions are at our doorsteps, stepping into them safely is only the most crucial. Here is a one way to plan an investment.

Step 1: How much are you going to invest?

First, we have to plan the source of saving and determine the amount that we are going to save and invest. On the quantity of investment only the strategy depends. It is an utter waste of time to plan hours and days together for few bucks of investment.

Step 2: Period of income and investment

Next, we have to check whether we can invest on periodical basis or one-time investment.

Step 3: Start with an end in mind

This is very important that we have to set some target like return in ten years child education, marriage or purchase of any asset after few years etc.

Step 4: Now invest

As a safe game player, I always have a conservative approach towards the investment. I suggest the same to my clients. Prefer diversification. The investment must not flow into single tube; it should be diversified into two or more. The following flowchart will give a pilot’s view on investment diversification.

Now on the basis of your funds and goal, select the available options from the above. Divide your funds into 3 parts. Always keep in mind that HIGH RISK- HIGH RETURNS. So, accordingly, invest in the above three areas, not equal but based on your preference. Again, subdivide your investment in each area and further penetrate into diversification as much as possible. Then your investment will not sink or float, it has a duckling approach.

If you are one-time investor, concentrate on more risk and medium risk areas. If you are a periodical and a small investor, the better option is medium and risk-free areas. Whenever you invest, diversify at least minimum amounts to get some financial security.

Go for risky market only if you have a bit of professional knowledge, time and risk-taking attitude. Don’t neglect tortoise, it was the winner in a moral story that we learnt when we were in school. Risky free investments are like the tortoise, we never imagine or observe that it meets our target but in a slow and steady fashion.

Normally salaried employees having regular income may go for Mutual Funds, Land and Building in medium risk space and some part of gold, PF Scheme, FDs in low risk profiles. One golden rule, which should run back of our mind, is that ‘all glitters are not gold’ and ‘Patience is greater than an ocean’ 


While evaluating the options, tax part must be taken carefully. For example, Investment in a residential house will fetch your income tax benefit. If a house taken on loan at a 9 % rate of interest for 1 Crore, then the cost of the loan is only 6.3 percent, considering 30 percent tax rate, whereas the house price hikes more than 10 percent. If we observe the example of other returns, we should reduce the tax part in the expected returns. Finally, we should not avoid battle in the fear of death, we must fight and win, but minimum shielding is required, this is doable only through the diversification.

Dr. CMA V.V.V. Phani Kumar
Manager (F&A) – Rashtriya Ispat Nigam Limited (RINL)

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