One Friday evening, as I was leaving the office, I overheard a conversation among some young employees who were discussing how to invest their surplus money. Out of curiosity, I approached them and asked what options they were considering. The most common response I received was that they were thinking of investing in a hot theme or sector, or buying stocks that were popular on social media or in the news. Some mentioned the idea of exploring mutual funds, following broker recommendations, or seeking advice from friends.
Every conversation has two sides, and this topic is no exception. On the positive side, it’s encouraging to see that young people are considering investing their money. However, on the downside, many of them lack a proper understanding of the rigorous process of investing and tend to make hasty decisions without careful consideration.
There are two possible reasons why many individuals believe they can handle their financial matters without professional assistance. One reason may be due to ignorance about the complexities of financial planning, while the other reason could be the misconception that only the wealthy can afford the services of a financial professional.
The Do-It-Yourself (DIY) investment model, which is often promoted by biased financial intermediaries, is built on a flawed assumption that individuals can navigate through the thousands of stocks, mutual funds, and smallcases available to them and make informed investment decisions on their own. However, this assumption is often not true, and it can be challenging for the average person to identify the right investment options.
The Don’t Do-It-Yourself (DDIY) investment model can be a better alternative when it comes to investing. Rather than attempting to navigate the complex and overwhelming world of investments alone, individuals can seek the assistance of SEBI registered investment advisors. These professionals can provide personalized guidance based on an investor’s risk and income profile, ensuring that their investment decisions are aligned with their specific goals.
SEBI-registered investment advisors are required to act in the best interests of their clients and cannot have a conflict of interest. Since they are regulated, they are only able to generate revenue by charging reasonable fees to their clients. However, the same is not true for other financial intermediaries such as mutual fund distributors or brokers.
Mutual fund distributors may face conflicts of interest since they earn commissions that vary by financial product. Similarly, brokers may also have conflicts of interest as they may earn more in brokerage fees when clients trade more frequently based on their recommendations. Therefore, it is important to carefully consider the incentives and motivations of financial intermediaries when seeking investment advice.
