Sethurathnam Ravi (S Ravi) is a chartered accountant (CA) based in India, promoter and managing partner of Ravi Rajan & Co and the former Chairman of Bombay Stock Exchange (BSE). He also serves as an Independent Director of Tourism Finance Corporation of India. In 2019, Ravi also joined SBI Payments Services Pvt. Ltd as one of the Board Directors. Before joining BSE, Ravi served on boards of various companies such as, UTI Company Pvt Ltd., SMERA Ratings, SBI-SG Global Securities, STCI Finance, and BOI Merchant Bankers. He also serves as a member of SEBI’s takeover panel and Institute of Chartered Accountants of India.
Sethurathnam Ravi, former BSE chairman, shares some tips for smart investing to reduce investment risk.
Sethurathnam Ravi (S Ravi) is a chartered accountant (CA) based in India, promoter and managing partner of Ravi Rajan & Co, a consultancy and accountancy firm based in New Delhi, India and the former Chairman of Bombay Stock Exchange (BSE) (November 2017 to February 2019).
Mr. S. Ravi holds a Master’s Degree in Commerce and a Diploma in Information Systems Audit (DIS). He is an Associate Member of the Association of Certified Fraud Examiners (CFE), USA, and is registered as an Insolvency Resolution Professional. In this article Mr. s Ravi sheds light into smart investing tips to reduce risk.
An individual’s investment needs are driven by a variety of goals and objectives that are different from self / child education, child marriage, retirement needs, creating a fund for down payment for a home purchase, travel fund, and emergency fund.
Based on the needs and objectives of the investment, individuals evaluate their risk tolerance detail, time to achieve goals, and the ability to replace capital erosion. Investment decisions are guided by the traditional investment principle of risk-return trade-off, which is related to high risk with high return.
According to S Ravi, the current markets offer a variety of investment products for investment needs such as fixed deposits, debt securities, equities, debt, equity or hybrid, SIPs, equities or hybrids, SIPs, ETFs, gold, real estate and currency. There are different types of risks associated with them, some of which are manageable and some of which are not. Market risk is the fluctuation of revenue due to macroeconomic factors and the political risks posed by changes in uncontrolled government policy changes.
Former BSE Chairman S Ravi also talks about price risk, which is the fall in the value of investment instruments, the loss of capital and the risk of inflation damaging purchasing power. There are risks associated with interest rate fluctuations, default risk (from which the loan interest has not been repaid since), risk of fluctuations, i.e., daily / frequent fluctuations in prices, and concentration risk due to investment. The theme of a single type / sector / asset, including currency risk in terms of a portfolio of investments, includes investing in foreign markets / forex instruments.
S Ravi also provides certain tools that an individual may have, which should be considered to mitigate the various investment risks involved. Such as:
1. Due diligence:
Due diligence is an investigation, audit, or review performed to confirm facts or details of a matter under consideration. In the financial world, due diligence requires an examination of financial records before entering into a proposed transaction with another party.
It is essential to do research before making an investment, says S Ravi. For example, before investing in a stock, it is important to examine the revenue growth, PE ratio, debt load and management team and then compare them with other stocks in the same industry in key parameters. Stocks with high PE ratio, unstable management, unstable profitability and revenue growth can be eliminated.
2. Capital allocation:
Deposit funds into different categories of debt, equity or a combination of both, depending on the growth requirement of the capital, of the total capital available for investment. If a person starts investing at an early age, investing in equities that offer high returns on long-term investments will reduce the risk of instability and inflation. Debt instruments, such as bonds, on the other hand, have higher inflation risk over time and are subject to interest rate fluctuations.
3. Portfolio diversification:
It includes a selection of different investment products, exposure to equity from different sectors, and a mix of different options available for equipment. As a strategy, the potential for low returns may be minimized, but the risk of significant capital loss is mitigated.
4. Monitoring portfolio:
This is essential at regular intervals. For example, during periods of low interest rates, the price of debt securities may rise and the portfolio may change. If an individual is unable to control oversight, it is a good idea to switch to mutual funds to save capital.
Currency risk needs to be assessed, i.e., in the case of IT and pharma sectors, opportunities arise when the rupee weakens, while in the case of Capital Goods & Power sector, strong rupee improves investment opportunities.
5. Blue chip stocks:
To mitigate capital losses and avoid liquidity risk, it is best to continue investing in belvetere stock or funds. Investors should pay attention to the credit rating of debt securities and invest in securities with better ratings to avoid default risk.
Mr. S Ravi BSE also states that the amount of money invested, the duration of the investment, the income, growth, associated expenses and risk tolerance influence the achievement of investment objectives. All types of investment products / securities carry some other risks. Before deciding on any investment, one should consider the risk appetite which is determined on the basis of wealth / net worth and risk capital at hand. Investment decisions should be made so as not to jeopardize the lifestyle.