Kaam Ki Baat: Profits are one side of the coin, risk is the other side….be it your health or investment

Kama Ki Baat: Profits are one side of the coin, risk is the other it your health or investments

In our example, if A hits a dietary peak in the last year and does more exercise than a limit, and B does a healthy diet and exercise regularly, then A has taken more risks to achieve the goal. .

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  • Publish Date – 12:33 pm, Mon, 27 September 21Edited By: Ankit Tyagi
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Even during the pandemic, market sentiment fluctuated between a focus on risk and a focus on profits. Last year the focus was on managing risk, now the focus is around earning maximum profits. Investors often choose the investment plan and focus on the profits in the last year on a specific date. To do so is a big mistake. I would like to clarify this through an example related to the lives of individuals. The idea behind this is to make the investor aware of other aspects while evaluating the performance of a fund.

Let us take the example of the head of a family, Mr. M. Mr. M wants his family members, A and B, who are of similar age, to lead a healthy lifestyle, do regular exercise and take care of nutrition in their daily lives. He knows that both are overweight for their height.

He has been challenged to lose weight in the next 3 years and has been promised a hefty reward for achieving this feat. At the end of three years, A loses 21 kg and B 19 kg. These are point-by-point numbers, which are the weight difference between the start of the challenge and the date of completion of the target period.

If only losing weight is the measure, then A would be the winner. But the question is, have these members told you the whole story? If we look at the whole journey of losing weight, then A lost 6 kg in the first year, then gained 3 kg in the second year, and lost 18 kg in the third year.

If we look at the figures of B, he lost 5 kg in the first year, 6 kg in the second year and 8 kg in the third year. According to this, whose diet and exercise seem more right?

If the motive was to improve the health of both, does 21 paint the right picture? Thus the method of taking the point wise number is flawed.

Like the point-by-point weight loss data in our data, viewing the fund’s profit margins does not give a complete picture to determine the strength of profits and the fund’s sustainability.

You imagine that Mr. M is aware of the error of taking the weights at the beginning and end date and he decides to take the weights of both the persons at the beginning of every quarter and compare the weights at the end of the quarter.

He weighs in at the beginning of January and the end of March, then in the beginning of April and the end of June and continues this exercise. By doing this, they have data for 12 quarters and by looking at the average, it is known that who has more consistency in this race.

So intuitively we will find that B is in a better position. If this method is adopted in the profit of the fund, then it is called rolling return. It doesn’t just rely on point-by-point data to draw conclusions, and gives you a better picture of consistency.

Mr. M can now do one more evaluation to select the real winner of sustainable lifestyle. It involves seeing how much risk a person can take to achieve this goal.

What are the specific risks in a weight loss exercise? Going to the extreme, controlling diet and exercising will probably not be sustainable in the long term and may cause harm to the body.

In our example, if A hits a dietary peak in the last year and does more exercise than a limit, and B does a healthy diet and exercise regularly, then A has taken more risks to achieve the goal. .

A had a higher risk than B in losing weight per kg. B is the winner in terms of the risk taken to achieve the objective.

Though it is difficult to quantify the risk taken to make profits in better times, but fortunately for us it is easily quantified in case of MF schemes. What kind of risk has the manager taken? In this way you can see that if we take the data on two points and work out a number, then it does not give the correct scenario as to who is the real winner in terms of long term objective.

A stable and disciplined process is at the core of a long-term goal, whether it is an individual’s health goal or an investment goal for a plan. Rather than a number to identify the real winner in the world of investing It is important to focus on aspects like stability and risk. Because just a certain number does not present the complete picture. Paying attention to these aspects or asking the right questions to the consultant will help you be better at making the right choice.

Author – Ajit Menon, CEO, PGIM India Mutual Fund

read this also: PM Narendra Modi launched Ayushman Bharat Digital Mission, know the answers to all your questions here


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Shehnaz Ali
Shehnaz is a Corporate Communications Expert by profession and writer by Passion. She has experience of many years in the same. Her educational background in Mass communication has given her a broad base from which to approach many topics. She enjoys writing about Public relations, Corporate communications, travel, entrepreneurship, insurance, and finance among others.

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