Sin 4. Getting tempted by high returns

Always remember: the higher the return, the higher the risk!

There is no free lunch in this investment game. If a fat, juicy carrot is being dangled in front of you, biting it might cost you dear.

Equity (shares and diversified equity funds) gives the highest return over time -- better than gold, fixed deposits and bonds. But it is also the most risky.

When you buy shares, you are actually buying into the business. And businesses do fail. Their profits drop.

Competition gives them a run for their money.

One company may offer a higher interest rate on the fixed deposit than another. But the company may not be as sound and chances of getting your money back might be slim.

Even though the bank offers a lower interest rate than a company fixed deposit, it is much safer.

Sector funds may seem more happening than a diversified equity fund. The sector could boom and you could make fabulous returns. But if it crashes, you will lose all your money.