Groww Digest

6 Day Course

Theme: comparing investments

Mar 4 to Mar 10 2024

6 Day Course is a part of our newsletter

series, Groww Digest - all things personal
finance.

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Day 1: Monday
Theme: comparing investments

We make many kinds of investments — mutual

funds, stocks, FD, gold, real estate, etc.

In this week’s course, we will try to understand how

we can compare different types of investments.

Measuring returns: how the investments are

performing.

Many people tend to think of different investments’

returns in different manners.

Example: FD is measured in % per annum, but real

estate is often measured as times growth (price has
increased by 2 times, etc).

Measure all returns in annualized or yearly format.

Use an online CAGR calculator for this.

Enter the starting investment value, the present

value, and the investment duration.

Now, compare the CAGR of different investments

for a fair comparison.

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Day 2: Tuesday
Theme: comparing investments

Yesterday, we discussed how we can compare two

different investments’ returns directly.

Today, let’s talk about liquidity.

Liquidity means the ability to get cash.

Example: if you want to take out money from an

FD, it will take 1 working day. But taking out money
from a real estate investment can take weeks or
months.

So, money kept in FD is said to be highly liquid.

Compared to that, money invested in real estate is
said to be less liquid.

It is possible that you might need the money at

some time, but are not able to get it fast enough.

Example: during a medical emergency.

But in some cases, you might be comfortable

having low liquidity — say, when you have a backup
source of money.

This is an important consideration when investing.

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Day 3: Wednesday
Theme: comparing investments

Today, let’s talk about the complex topic of risk.

We often pay a lot of attention to the returns. But

we almost always, ignore risk.

Many investors tend to think the risk is either zero

(FD, RD, etc) or risk is very high (shares, F&O, etc).

The reality is, that every investment is risky. Even

FD. And the level of risk varies in every case.

FD is extremely low risk. Shares investing is high

risk. F&O investing is an even higher risk.

The biggest problem that investors face is that risk

cannot be really measured.

People try to measure it using some numbers like

beta. But that only measures volatility.

There is no number or metric that can clearly tell

you the level of risk.

It is subjective. Investors have to learn about risk

themselves.

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Day 4: Thursday
Theme: comparing investments

Today, let’s talk about the investment period.

Technically speaking, many investments allow

you to take out money whenever you want.

But that may not be ideal.

There are many investments that are not

good for shorter periods. You may even suffer
losses if you withdraw too fast.

Investing in shares and equity mutual funds is

one such example. Gold can also be like that.
Many real estate investments make no sense
if investing only for a few months.

The idea is, that before choosing where to

invest, you need to be sure how long you plan
to stay invested.

Based on that time, you can compare

investments and decide where to invest.

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Day 5: Friday
Theme: comparing investments

There are many other things you need to

consider when comparing different
investments.

These depend on the investment options you

are comparing.

For example, in some cases, you will also have

to compare the taxes on the returns earned.

Some investments' final returns can be

reduced significantly after the tax is paid.

If there are people or organisations involved

in your investment, then you need to evaluate
that aspect also (example: fund manager).

Other factors like the amount of paperwork

and eligibility also need to be factored in some
cases.

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Day 6: Sunday
Theme: comparing investments

We’ve reached the end of this week’s course

that started on Monday.

Here’s a test you should take. Get pen and

paper!

Question 1:
Returns should be compared using:

-CAGR
-Absolute profit

Question 2:
Which usually has better liquidity?

-Real estate
-Gold

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Day 6: Sunday
Theme: comparing investments

Question 3:
Which metric best measures risk?

-Returns
-Beta (volatility)
-None

Question 4:
The investment horizon in which case is
shorter?

-FD
-Shares
-Both are same

Question 5:
Case 1: 10% p.a. returns; 10% tax on profits
Case 2: 12% p.a. returns; 30% tax on profits

Which is better?

-Case 1
-Case 2

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Day 6: Sunday
Theme: comparing investments

Answers:

Q1: CAGR
Q2: Gold
Q3: None
Q4: FD
Q5: Case 1

Page: 9
 That’s it for this week!

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See you next week!

—Groww Digest Team

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