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Simple is always better

Don’t invest in products that you don’t understand 

“Never invest in a business you cannot understand.”

Warren Buffet

Complex things carry a different aura. The higher the level of complexities, the higher is its attraction. It is especially true when it comes to money and finance. We like to believe that if something is complicated, then it must be good for us. We are in one way trained to believe that the good things are complex and it won’t be possible for us to understand these complex things.

And we heed to our friend and invest in products that we don’t truly understand. There is nothing wrong in investing these products if you know and understand it. Till the time you understand, it is better to stick to financial products that you understand. 

Let’s talk about Warren Buffet, one of the most famous investors in the world. Initially, he didn’t invest in technology companies including Apple, Amazon etc. just because it was business that ‘he didn’t understand’. People have been quick to point out that he had missed out big opportunities in the technology giants that have given 20X times over the course of time. However, people forget that they were many companies that have shut their doors in the same time frame.

That was Warren Buffet. In our day to day lives, we come across number of people who regret their investment decisions. People invest in ELSS and ULIPs without knowing their lock-in period and end up in a financial mess.          

Talking about simple products, there are many simple products that are easy to understand. Savings Account, Recurring Account and Fixed Deposits are some of the easy financial products that everyone can understand.

A savings account is a simple and secure way of saving your hard-earned money and earning regular interest on it. Additionally, it provides high liquidity and you can withdraw and deposit money anytime as per your convenience. Today there are different types of savings accounts to cater to different types of customers. You can open a savings account with a bank or a post office. Some savings account come with minimum average balance where the customers need to maintain a certain sum of money on a quarterly basis. There are some savings accounts that give a higher rate of interest than other bank accounts. Zero balance saving account is a type of savings account that does not have a minimum average balance. 

Recurring account lets you to save a certain portion of your income on a regular basis. Having a RD can help you to inculcate saving habits and develop financial discipline. You can open a recurring account with as little as Rs.100 per month. RD is one of the easiest investment options and it gives a fixed rate of return. The rate of interest is not linked with the market and the interest rate that has been set in the beginning of the tenure will continue to exist. However, when the RD matures and you want to renew, then the current/revised interest rates will be applicable.

Fixed deposits are offered by banking and non-banking financial entities. Fixed deposits give you higher interest rate than a savings account and a recurring account. While in RD, you deposit a fixed sum of money every month, in fixed deposits, you need to deposit a defined sum of money for a fixed time period. The tenure may last from 7 days to 10 years. You earn a higher interest based on the duration of the deposit.

These were some of the basic and easy ways to save your money. It is always good to keep things simple and only invest in products that you know and understand.    

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