Get The Best From Your Investments

Hemant Rustagi

CEO, Wiseinvest Advisors

It is heartening to see an increasing number of investors achieving investment success on a consistent basis. There has also been a marked change in how they perceive risk and reward and have understood the importance of creating the right balance between these two important elements of investment. Besides, they demonstrate commitment to follow the right process to decide which asset classes to invest in and in what proportion. Last but not the least, they are gradually making market-linked products like mutual funds an integral part of their portfolios.

However, as mutual funds are becoming increasingly important in investors’ investment landscape, many of them, especially those who invest in equity funds, face certain dilemmas every now and then. Then there are those investors who are still on the sidelines, wondering whether mutual funds are an ideal investment option for them or not. Here’s how investors can deal with these dilemmas:

Is it Time to Exit?

This is a dilemma that every investor faces from time to time. Every time the market turns volatile, investors start wondering whether it’s time to exit. The fact, however, is that with any investments, there are two key decisions to be made. The first is when to buy and the second is when to sell. Obviously, the difficult one is to know when to sell. The right way to tackle this dilemma is to stay committed to one’s time horizon and maintain the asset allocation worked out after keeping investment objective and risk profile in mind.

While booking profits may be an integral part of the portfolio strategy, relying on the market timing to do so may not be a smart thing to do. The right thing to do would be to rebalance the portfolio to bring the asset allocation back at the original level i.e. by redeeming a part of the better performing asset class and move it to another asset class that is not doing well at that point of time. This can be an annual exercise. This strategy allows an investor to not only remain invested in equity at all times but also benefit from averaging as rebalancing ensures entry at lower levels.

Is it Time to do Bottom Fishing?

The increased volatility in the market in recent weeks has left investors wondering whether they should wait for the markets to bottom out or start making part investments at different levels. Considering that the current fall is more on account of international factors than domestic ones, it is very difficult to predict as to how the market will pan out in the short term. Therefore, investing as a combination of systematic and lump sum can yield wonderful results. For a mutual fund investor, the prudent way to invest in equity funds would be to invest a part of the investible funds as a lump sum and the balance systematically over a period of time through a Systematic Transfer Plan (STP). Through STP, one can transfer a fixed sum at a pre-determined interval from a liquid or a floating rate fund to an equity fund of the same mutual fund.

Are Mutual Funds Safe and Transparent?

Though mutual funds are slowly and steadily finding their rightful place in the portfolios of Indian investors, there is still a section of the investing public that often wonders as to how safe and dependable mutual funds are. For the benefit of those who have not yet started investing in mutual funds, it is important to know that one of the safeguards for mutual fund investors in India is that the industry is well-regulated. These regulations not only cover every aspect of a mutual fund working but also clearly spell out as to what a mutual fund can do and what it cannot do. The disclosure norms, level of transparency and control of mutual funds ensure investor protection.

One of the major benefits of investing in mutual funds is the wealth of information that they provide to existing as well as prospective investors. Taken together, the various reports provide investors with vital information regarding the financial status and the manner in which the fund is managed.

As regards keeping a track of one’s investments, the main sources of information are fact sheets, websites and various publications. MFs publish monthly fact sheets which contain portfolio information, a report from the fund manager, and performance statistics on the schemes managed by it. These can help an investor a great deal in knowing how the schemes in his portfolio are doing vis-a-vis the peer group as well as the benchmarks.