Ex­pert Speak

Dalal Street Investment Journal - - CONTENTS - He­mant Rustagi Chief Ex­ec­u­tive Of­fi­cer, Wi­sein­vest Ad­vi­sors

Mu­tual funds have ex­panded the in­vest­ment uni­verse of in­vestors by al­low­ing them to in­vest in dif­fer­ent as­set classes in a sim­ple, yet ef­fec­tive, way. Even bet­ter, in­vestors can keep al­lo­ca­tion to dif­fer­ent as­set classes in line with their risk pro­file at all times and ben­e­fit from in­vest­ing in funds fol­low­ing dif­fer­ent in­vest­ment strate­gies. Be­sides, full time pro­fes­sional fund man­agers man­age money in line with their de­fined in­vest­ment ob­jec­tives. The tax ef­fi­ciency of re­turns al­lows in­vestors to keep more, and that goes a long way in en­sur­ing that they have suf­fi­cient fi­nan­cial re­sources at dif­fer­ent stages of their lives.

How­ever, only a small seg­ment of in­vestors has been able to make the most of th­ese op­por­tu­ni­ties. There are a num­ber of rea­sons that im­pact the fi­nal out­come of in­vestors’ in­vest­ment process over dif­fer­ent time pe­ri­ods. In fact, even the im­pact on their port­fo­lio re­turns varies, based on when and how they in­vest as well as how soon or late they start their in­vest­ment process. While some in­vestors fail to ac­cu­mu­late the kind of cor­pus they re­quire to ful­fill their goals, there are oth­ers who don’t even start mak­ing their in­vest­ments for fear of ei­ther los­ing a part of their cap­i­tal or earn­ing very low re­turns. Then there are those in­vestors who show com­plete dis­re­gard to their as­set al­lo­ca­tion and the risks as­so­ci­ated with the port­fo­lio im­bal­ance in their quest to max­i­mize the re­turns. It is a proven fact that as­set al­lo­ca­tion plays a sig­nif­i­cant role in cre­at­ing the right bal­ance be­tween risk and re­ward. Be­sides, re­bal­anc­ing ei­ther up or down, is a nec­es­sary in­gre­di­ent for the long-term suc­cess. Port­fo­lio re­bal­anc­ing is a process of bring­ing the dif­fer­ent as­set classes back into proper re­la­tion­ship, fol­low­ing a sig­nif­i­cant move in one or more. An­other im­por­tant as­pect is not to lose sight of long-term ob­jec­tives. In­vestors must re­mem­ber that shift­ing fo­cus on short-term goals at the cost of long-term ones can ex­pose them to se­ri­ous fi­nan­cial risks.

As is ev­i­dent, in­vestors must fol­low the right in­vest­ment process to get the best from mu­tual funds. If you are look­ing to start plan­ning in­vest­ments in mu­tual funds, here’s what you need to fo­cus on:


It pays to be­gin in­vest­ing after do­ing some ground­work. There are three steps that can help de­ter­mine an ac­tion plan. First, you must be­gin by mak­ing a list of in­vest­ment goals to be achieved dur­ing short, medium and long-term hori­zon. Se­cond, you need to as­sess your cur­rent po­si­tion in the fi­nan­cial life­cy­cle. Third, you must de­cide as to how much risk you are will­ing to take to earn your tar­geted re­turns as well as what is your ca­pac­ity to take th­ese risks. This is crit­i­cal as dif­fer­ent fi­nan­cial ob­jec­tives re­quire dif­fer­ent in­vest­ments.


In to­day’s ever-chang­ing fi­nan­cial en­vi­ron­ment, it pays to al­low pro­fes­sional fund man­agers to man­age your hard-earned money. Though in­vest­ment risks and eco­nomic un­cer­tain­ties can never be elim­i­nated, pro­fes­sion­als man­ag­ing your money in mu­tual funds can help you tackle them more ef­fi­ciently. Hence, you must make mu­tual funds an in­te­gral part of your port­fo­lio. How­ever, to ben­e­fit from their ex­per­tise to the fullest, it is nec­es­sary to in­vest in the right type of funds, i.e., in­vest in those funds whose ob­jec­tive matches with yours.


Many of us have the habit of in­vest­ing in a hap­haz­ard man­ner to save taxes. That’s be­cause we con­sider tax sav­ing in­vest­ments a bur­den rather than a tool to get the best in terms of sav­ing taxes as well as mak­ing our money grow. There is a need to in­te­grate th­ese in­vest­ments into your over­all in­vest­ment pro­gramme. Be­sides, you need to adopt a dis­ci­plined way of in­vest­ing rather than in­vest­ing at the fag end of the year.

After de­ter­min­ing your over­all ex­po­sure to eq­ui­ties, you can in­vest in Eq­uity Linked Sav­ings Schemes (ELSS) of mu­tual funds. Be­ing eq­uity-ori­ented funds, th­ese have the po­ten­tial to pro­vide bet­ter re­turns than most of the op­tions un­der Section 80C.

An­other no­table fea­ture is the tax ef­fi­ciency in terms of re­turns earned through them.

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