Language of Money - Series 1

It is a common thing that investors enter stocks only after the party is over. To tide over this problem, systematic investment plan, SIP, was made popular. But the equity crash of 2008 has shaken investor's confidence like never before. Time and again we have repeated that there is no shortcut to building wealth, except understanding investment basics.

Advice from professionals should only be considered for double-checking what you think is right, just like a second opinion.

At a more basic level should we not be more aware of our own money? Should we not have more control on our finances? If the answer you feel is yes, then obviously the next question you have is 'how do I take control of my finances, if I myself don't understand much about it'?

Obviously, it would have been so much better if we had known when the NAV would rise and fall.

Actually, there were fair indications to understand the rise and fall. But the problem is that investors didn't understand how to interpret these indications. Many times they don't even know what these indications are!

Simple: learn about it. Where is the doubt? If you want your money to grow; if you want to be in better control of your finances, there is only one way: learn how the game is played. Read on to find out what happens if you don't understand the language of money!

We now have enough data to prove that it is not only in stocks but also debt where investors like to lose money! Take a look at the adjacent chart. This is the data for a gilt (debt) fund, taken from the fact sheet.

Focus on the way the assets under management, AUM, (the blue vertical bars) came down till July 2008 after which there was neither any increase nor any decrease in the AUM for three months; and since October 2008 the AUM shot up each month.

While Rs 37 crore were added in October 2008, November 2008 and December 2008 saw an increase of Rs 200 crore and Rs 375 crore respectively.

What this means is that money went out of the scheme till July 2008 and again entered in big chunks in the last three months of 2008. After this too, money was coming in into this scheme, but at a lesser pace.

So, what's wrong with money coming in and going out of a scheme?

Look at the way the net asset value, NAV, has moved (the yellow line).

From January till July (when money was leaving the scheme) the NAV barely moved. It was Rs 25.38 in January 2008 and was at Rs 24.21 in July 2008. It was from July 2008 the NAV started moving up and reached its peak by December 2008!

What it means is that maximum money entered at the peak, and today all of these investors must be sitting on huge losses as the NAV has been going down since then!

Please look at the Image Attached with this Blog to understand clearly