Risk to a great extent is counter-intutive! When the index was 3000 (circa 2002) I would meet bank Relationship Managers and IFAs (Independent Financial Analysts) who would tell me “Sir, I only sell debt funds. They are so secure, and you know last year gilt funds yielded 19% p.a!”. I would gently probe and say “What about equity?” and they would reply “No Sir, I do not care how much money I make, the client’s money should be safe” that is all. One IFA went to the extent of telling me “I do not even keep equity forms sir, it is not worth keeping.” See in the past 2 years, it has given no return.

Their logic largely was “Tomorrow will be like today, so what if yesterday was not like day before yesterday”. I fail to understand this logic – but that is for Behavioural Finance experts to talk about.

At 21000 most RMs and IFAs had convinced their client “See the past 4 years, most of my clients have got 34% p.a. returns, so you will get at least 24% p.a.” “Sir we can SHOW only 6% and 10% projections, but our fund manager had got 48% in the past 6 months. So let us conservatively assume say 30% p.a. for the next 30 years….”

This is not a RM bashing place. Simple. Risk is largely counter-intutive. When you think there is no risk, risk is maximum and vice-versa. AT 21000 people thought there was no risk. Now at 12000 people think there is too much risk. Both are wrong. Risk is always there is the market. For a person who invested in Jan 2008 and he thought he will sell @ 25000 in June, he was being foolish. However, the person who thought that index can also go down to 9000 in 6 months time and therefore part invested (through sip) is surely looking smarter.