Six necessary nudges that will push you to invest for a better future

A nudge is nothing but manipulation of human emotions to keep them away from mistakes

Viral BhattUpdated: Friday, May 27, 2022, 02:26 PM IST
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A majority of investors are like infants in the field of investment, wherein they are unaware of the good and bad of the industry. It is at the end of the financial year when they review their investment and acknowledge their decision. When the review is not positive enough, they lose hope and enthusiasm for sustaining the investment let alone adding to it. However, they never go into depth to understand why the review is not favourable.

As humans, we are predictable and make mistakes in haste or spur of the moment. However, these mistakes can be repaired easily, if given time and patience. A psychological study suggests sometimes humans need that one push to go beyond and be successful. A nudge is nothing but manipulation of human emotions to keep them away from mistakes.

Let us look at a few of such nudges, which are essential for investors and advisors, to succeed in this vicious world of investment.

Conditional rewards

The human mind always craves rewards, which is nothing but a return on the invested time and efforts. These rewards are the fuel to the investment of time and effort. Saving from your income is a tough task, but given certain incentives, this task may become a bit easier. In reality, saving requires habit. And, habit is a continuous process, wherein beginning is the most difficult part. If the human mind is manipulated in the beginning, sustaining it won’t be difficult. This is the nudge which every individual investor will require at first, to paint a fruitful picture. Thus, investors and advisors alike can reward family members and investors respectively to motivate them to save more and get treated more.

Investment vis-à-vis future projection

No investor understands the difference between a Rs 5000 SIP compared with a Rs 10,000 SIP, as for the naked eye it is just another additional Rs 5000 per month or Rs 60,000 per year. So, what difference just a Rs 5,000/60,000 per month or year will make? Think again, because in reality if a Rs 5,000 per month SIP after three years can take you to Manali for vacation, Rs 10, 000 per month SIP at the same time can take you to Europe. Often the investment amount may not give you the right awareness for the right amount of savings, however, the future projection might.

Not by choice but by default

If something happens by default, it happens only because someone does not do something else. Every individual loves a default because it saves them from the stress of choice. Whenever we talk about savings only one thing comes to mind by default — Fixed deposit. Whenever term insurance is talked about, we end up with an endowment plan and when tax savings is the requirement, we rush to LIC premium.

Error reduction

In investment, if you try and understand which simple errors have cost you or your investor in the past, the results will be positive. For instance, ECS bouncing charges due to lack of sufficient balance on time or paying unnecessary exit load on redemption or forgetting to deposit the minimum amount in your PPF account. These errors must be eradicated by analysing them when they occur and putting in place a mechanism to stop them.

Simplifying investment

When you say investment, you are flooded with options such as mutual funds, fixed deposit, tax savings schemes, government bonds, life insurance plans, endowment plans and whatnot. This is as vague as saying “I want to buy a car”. Now, when you want to purchase a car, you select the one which suits your needs. Similarly, when it comes to investment, one should know the ultimate objective for the investment and then invest in an appropriate instrument. Decoding complexities by understanding the requirements is essential to know where to invest, otherwise, it will create havoc in choosing the instrument.

Timely response aka feedback

Today, people want a fast response — Be it food, goods delivery, customer grievance and any other field. Slow becomes obsolete, whereas quick and fast are preferred in every aspect of life. Investment may be fast, easy and user-friendly, however, its result takes time. This time frame makes every investor impatient and forces him/her to liquidate or look out for other investment options. However, if these investors are fed with consistent feedback on their investment, they may stay long enough, no matter how slow the results are.

(Viral Bhatt is the Founder of Money Mantra — a personal solutions firm)

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