In this report Dawn's team of economic journalists attempts to explore different investment options for the middle class. Each individual must make his own decision depending on circumstances, age and needs. The effort here is to focus on available options and to weigh the risks against benefits.

The well off and well informed know where to take their cash. The dilemma is of the small saver. His choices are few: stocks, bonds, bank deposits, gold, currency, commodity or property. In deciding where to park his money, his concerns are safety, security and a healthy return that hedges against galloping inflation. Pensioners, widows, low net worth individuals and laid-off employees face one nagging worry

KARACHI: It is a pity that savings and investment in our country have always been put on the back burner. The government has never done enough to promote either. And the result is that from a retired office worker with small savings of, say, Rs0.5 million to a reasonably successful non-practising surgeon with Rs 2 million in savings- no one is "quite sure" where to put his hard-earned cash that would support him for the rest of his life.

Lack of knowledge is the key word when making decisions on investment by the small saver. We have not attempted here to change our mould from newsmen to investment advisers, but from the scores of interviews conducted by our reporters, one gets an insight into the various traits that indicate where a person is most likely to put his last bag of money.

Naturally, the two biggest concerns are: safety of money and a fair return that allows a person to maintain purchasing power parity that keeps ahead of inflation. And the decisions are made by individuals depending on their intuition, need or readiness to take a risk. As one happy-go-lucky individual said, "No risk no gain".

But before taking the plunge, it would be advisable for an individual to take some time out and do a bit of homework. Not all investment options suit everyone. It has to do with age of the investor and his immediate and future needs. But even if a small saver- provided he knows a bit of maths- would do well to examine in detail every possible option and calculate the risks against returns. Most intelligent investors park their cash after evaluating their own personal situation and requirements. They select a mix of investment tools that suit their needs and then allocate the available cash to each in proper proportions.

But a decision once made, may not be for one's lifetime. Any change in situation or weightage of variables could call for a reevaluation and adjustments. This means that the investor has to keep his eyes and ears open. Circumstances change. Who would have dreamt a couple of years ago that the price of a small plot in Defence Housing Society in Karachi, would shoot up from Rs0.3 to Rs15 million or that the price of shares in the stock market would jump 300 per cent in three years? By luck, intuition or a cool calculated decision, many people who seized the opportunity of making the right move at the right time managed to shed their rags and roll in riches.

Conventional wisdom suggests that all eggs must not be put in one basket. Diversification is the key. However, maximization of gains depends, beside luck, on identifying the limit of risk-taking that corresponds to investors' priorities. Reckless risk-taking in a quest to hit the jackpot often backfires. Remember the late lamented Abdus Samad Dadabhoy and the publishers, the Taj Company? It was the desire for quick returns that drove investors in droves to see their money fetch an incredibly high return of over 100 per cent per year, before all that investment itself evaporated in thin air.

Intelligent investing suggests that a small percentage of total savings may be employed in high-risk options that produce high rates of return. Overly cautious investors also end up as losers, for when it comes to returns, they could envy the person who mixed a bit of risk with a lot of safety and got more in return. But as said earlier, the investor ought always to take a "calculated risk".

Our target group of small savers was generally found to be typical in its behaviour. They sacrificed, waited and aspired for the funds that they would receive say on retirement. But when they at long last got their bagful of money, they were at a loss to understand where to put it. Under the pillow, in an underground pot of clay, banks, National Saving Certificates, stocks? Becauseinflation is running at a high eight per cent and in order to protect the principal as well as earn a decent return, a person must find the right avenue, and the quicker the better.

Except for a lucky few, most petty savers were baffled and fumbled for an answer to the question: "Where would youwant to park your life'ssavings?". Such innocent savers are to be found everywhere.

Our survey in major cities of the country helped us to identify this category of fund holders. A majority who possessed Rs0.5-2 million could be classified into 'retirees'. They also included individuals retrenched from banks and other de- nationalized institutions, perhaps ruthlessly in the middle of their careers, and those that received their share from inheritances and others who had money (hopefully well-earned) but knew not what to do with it.

Our sample of savers was found generally to consist of persons reasonably or highly educated but totally inexperienced in handling money matters. In their professional careers few had exposure to financial dealings. Since they also ran around in limited social circles, their knowledge about what was in and what was out in the field of savings was next to nothing. Not everyone is comfortable with numbers and though no one despises money, its counting and keeping can be tedious business. The first pre-requisite of intelligent investing is day-to-day monitoring. Unless investment is in fixed income securities, prices of assets can change without warning. For people who do not have the time, energy or inclination for such surveillance, speculative assets could hardly be the investment of choice. So instead of investing directly in stock market, they go through the route of mutual funds, that keep an eye on the market on a daily basis, and give the contributor a return - good or bad - at the end of a specified period.

Investing in property may be very profitable, but holding plots is no easy job (many shudder at the thought of land grabbers). Until a few years ago, most small savers preferred government sponsored national saving schemes over all other investment avenues. These gave out fabulously high two-digit, risk-free returns at regular intervals. But the sharp plunge in interest rates in recent years have taken the gloss off the National Savings products. Interestingly, a great many of the younger lot who took huge amounts of cash in golden handshakes from their employers decided to go into small businesses. But business is business. Without acumen, all that most such middle-aged people could think about was setting up small shops, real estate agencies and the like. In areas where several such shops sprouted, only one had to be successful; the rest had to pull down the shutters.

In the absence of guidance, institutionalized or otherwise, there looks to be a real threat of such small savers falling prey to swindlers. The stage looks to be again set for such elements to cash on the situation. As it is, there are reports of increased activity by unscrupulous persons from many places in the country. But it would be wrong to assume that the nation is full of cheats. There are genuine businesses people as well who prefer to operate outside the formal structures. They raise money on trust from the market and offer interest rates much higher than those offered by others. We learned that such parties are specifically active in the transport sector in Karachi and the jewellery trade in Quetta. Their networks are elaborate but there is hardly any paper work involved and thus no scope for settlement of any dispute through the country's legal system.

It will not cost much and facilitate domestic savers a great deal if the government directly or indirectly through banks or institutions, tried to disseminate relevant information. With a competent finance minister now at the head of government, the state could also think of providing some sort of advisory services to such small savers at nominal cost.