How small investors can rectify their financial mistakes

I am in a financial mess. Please help me get out of this." This SOS from Kolkata-based lecturer Meraj Mubarki is among the scores of letters that ET Wealth gets from readers seeking advice on their insurance policies. Mubarki had bought four insurance policies to save tax and was finding it difficult to pay the premium.


Bangalore-based Jitendranath Patri had over-invested in insurance policies, which was impinging on his ability to invest elsewhere. Delhi-based hotel manager Joyjit Chakrabarty is the sole earning member for his family, which comprises his wife and child, and has an insurance cover of Rs 9.2 lakh through four policies.

Two of the policies, which cover him for Rs 6.2 lakh, will end in 10 years, when he is 42. Can he buy more? He's already paying Rs 76,000 a year, more than a month's salary, for four policies.

Life insurance is a fecund ground for money mistakes by small investors, but it's not the only area where they get it wrong. Readers have been writing to us about errors while picking mutual funds or how their stock portfolios are awash in red even though the market is shooting up. Some of these mistakes are fairly elementary and can be fixed with a little tinkering of the portfolio.

The problem crops up when an investor bases his entire strategy on the way his investments have performed in the past. Diwakar Kukreja lost money because he invested a lump sum in untested new funds at the market peak between 2007 and early 2008. He has not invested in funds since then, losing out on the opportunity to buy at multi-year lows in 2008 and 2009. Had he invested in the same funds through SIPs, he would be sitting on a stockpile of profits. Instead, his portfolio is still in the red.

The other common mistake made by investors is that they are not able to determine their risk profiles and base their asset allocation on it. They are either not taking enough risk or have taken too much of it. This is why we decided to look at the mistakes of five individuals who have sought our advice. You might discover that you have committed some or all of these errors. The good news? In the following pages, you will learn how you can get your finances back on track.