Hi friends and welcome to Life Lessons.
DISCLAIMER: This episode is going to have aroma of finance terms for better explanation
of what I need to share. It is a gentle request to cope up with it. The
elucidation below is purely out of my knowledge, perception and research. I do
not mean to hurt feeling or opinions of any one.
As a
part of preparation for my post graduation, I was going through various finance
concepts. During this process, Yesterday, I have come across a concept known as
“Mutual Funds”. This term is very common word for some people, whereas
it is n new term for some. After I have been through various details of this
concept, some older perceptions about finance flashed at once. I felt that
knowing this concept added to these perceptions. To understand what is the
perception and its interpretations, you need to go through following lines.
My Chronicle:
It was a year ago (2019). I was in plan to
start construct a new commercial space. As expected, I had no enough money to
complete the process. In this scenario, I had no other choice than visiting a
bank. I enquired about the types of financial support that are available to me.
Before visiting the branch, I had been
through the official website of the same. I was confident that I could avail
finance in one or the other form since there were many options available. These
included Gold loan, LAP (Loan against property), Personal Loan, Business loan
etc.
As I entered the branch, an employee welcomed me and talked to me in very pleased manner. In the course I elucidated my requirement, and he answered he would be glad to help me. Here started the actual chronicle. He took me to a senior official who would probably evaluate me and my particulars. He enquired about my profession and back ground. I answered him accordingly. (I was transparent about everything) I answered that I’m an entrepreneur; I have a partnership in a business. After some time of talking, he tried to come to the point. He said, the bank needs a salary slip or a turnover statement of the business to avail loans. Since I was not a salaried person, I had to look at the other option. And the other option was the turnover statement. Since I wanted loan for my personal finance, I couldn’t produce the turnover statement of the partnership firm. I tried to explain the same to him. But he said, without either of these nothing was possible.
I insisted the LAP (Loan against property)
should be available. He said for a loan against property, I need to have a
large amount of income in my income returns statement. (This implicitly means I
was ineligible for this too.) Since the value of the property was almost
Rs60lacs, and loan amount I wanted was just around Rs10lacs, I asked what the
complication in it was. He said, “A proof of salary or large amount regular
income is required along with this property”. I almost came to a conclusion
that nothing is going to happen.
I was depressed that day because I was eligible
for nothing. But the dominant thought in my mind was the logic behind these
institutions behind offering financial support.
Observation(s)
The observations are quite clear. There was a logic and reason behind offering financial aid by these institutions. These people tend to offer loan only to those people who already have sound income. That means they tend to offer to ‘richer’ people only.
There was underlying observation too. This is the interesting one compared to the previous. These institutions offer aid with safe profit. What does this mean? Let me try to elucidate.
The above chronicle also highlights the tendency of these institutions towards offering finance. They need asset, they require large income figures and finally they charge interest on the aid they provide. This is no doubt the actual policy of the bank. What I want to highlight is that these institutes need profit from the service- that too safer one (since they offer to richer kids only).
This was the main area I was deeming about. The tendency of almost all institutions is the same- safe profit. Same was the case with the concept of mutual funds too. Share market is a risky platform. Returns are not quite uncertain in this platform. Therefore the concept of mutual funds came out. In this concept, a fund manager and his team creates a portfolio of investments to minimize risks. Now what is the problem with this? No doubt mutual funds are safer compared to stock exchange. But they don’t assure returns on the money we invest. And the worst fact is that in case the fund not moved up (nav at maturity is same as that of that at the time of investment), the return is actually negative. How? It is because there are certain underlying charges for the operations of these funds. These include the salaries of the fund manager and other staff, the charges for entering and exiting the funds etc. These charges are deducted from our principle amount at the time of exit. This means whatever may be the result of the fund, the fixed charges (mentioned above) are deducted and the remaining amount is offered to us no matter it is gain or loss.
Almost every finance institute has more or less the same policy. The matter of concern is that they just change the form of our asset from fixed/current to liquid, and for this they charge us. This implicitly means that for availing finance, we must have finance (at least in some other form). A person having goals and no finance is nothing to these institutes. I wonder why a person having sound income would want loan. This question is more of a morality than the practical sense. But I feel this to be valid.
Interpretation(s)
Finance is a peculiar concept I have ever
seen in my life. Managing money means looking after and planning of money that
one has. But the definition has eventually changed it seems. I hope the above
description has brought out a valid underlying fact to all of us. By this
episode, I only want to communicate that making money and the way to get it should
be in our hands. Depending upon these financial institutions would not make
sense in many of the cases (especially when we feel we do not have any sort of
assets with us to bait them)
I hope this undivulged chronicle of Finance helped in interpreting the scenario and the underlying truth.
NOTE: There may be exemptions of what I meant to describe here. Any
government sponsored loans may be available for certain people. And in most of
the cases these are offered to backward castes., and not the ordinary people.
On the other hand, there are other options to obtain finance is the gold loan
which also requires gold form our side to avail.
Hope you like this Episode.
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check out my site:
ajiteshippili.blogspot.com
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