Asset allocation is like a full course meal full of different recipes, says Priyadarshini Moreshwar Mulye, a SEBI Registered Investment Advisor and Founder, ARTHA FinPlan.
In an interview with MintGenie, Mulye said that indexation benefit was one of the major distinguishing factors which debt funds used to have before changes in their tax implications.
Q. What simple changes do you advise in a mutual fund portfolio to earn higher returns?
To get better returns from the existing portfolio of mutual funds, one should first get the updated valuation. If the investment is made randomly and without any goal assigned, then please decide on the goal first. For short-term goals, one can assign short-term debt funds and for long-term goals, suitable equity funds.
Further, reduce the number of schemes which are repetitive from the same category and do not deliver returns at par with the respective benchmark for more than two years at least. This will help to curb overdiversification. Now you can clearly view your portfolio which will further help you to review regularly and make suitable changes along. While making any fresh investment too, decide on your basics, viz., future goals, investment tenure and risk appetite.
Q. The RBI Governor keeps the repo rate unchanged at 6.5 per cent. Do you advise loan borrowers to focus on prepaying their loans before they go up again?
The Reserve Bank of India (RBI) has taken a “Pause" for now with respect to repo rate changes. But it may change in the next policy meetings. When it comes to “debt reduction", it gives us psychological relief and we can better utilize the money for other meaningful purposes. Considering this “pause in rate hikes", if the loan borrower has surplus money, then as per applicable terms and conditions of the respective loan, one can pre-pay in the best possible capacity. However, he/she should not compromise on investments for future priority goals.
Balance is the Key!
Q. Debt funds have lost their indexation benefit, thus, bringing back the focus to bank deposits and government-sponsored schemes. Do you advise investors to now allocate their money to hybrid funds to avail of the dual benefits of both equity and debt?
Indexation benefit was one of the major distinguishing factors which debt funds used to have before changes in their tax implications. Now, as debt funds come with the same tax implications as fixed deposits, people have started considering them to invest. Along with them, hybrid funds are gaining attention too as they offer dual benefits and exposure to debt & equity asset classes.
However, one should invest in them if his/her goals & risk appetite fit for the same. Investors must invest in hybrid funds due to their features & suitability, not just because they offer tax advantage over Debt funds.
Q. How do you advise investors regarding their asset allocation? What assets do you advise them to put their money in and in what proportion?
Asset allocation is like a full-course meal full of different recipes. We eat what we like & most importantly what suits our health. Likewise, asset allocation is selecting a suitable asset class in the right proportion to invest in suitable underlying investment options.
Now, to decide on asset allocation, investors should first decide on future goals & Investment tenure. This will help them to select broadly the allocation of asset classes, e.g., if short-term goals are more, then allocation to debt will be more in the portfolio.
Furthermore, investors must screen through suitable investment options under that asset class as per risk appetite, goal and tenure. Also, for short-term goals with fixed tenure, one can choose a bank fixed deposit, start a recurring deposit or post office investment.
For short-term goals with flexible tenure, liquid funds, money market funds or short-term debt funds can be suitable. For long-term goals, one can select suitable equity mutual funds. Apart, investors must read and understand the basics of the investment option before investing.
Q. AMCs are lending innovative names to their NFOs. Should investors participate in the same to benefit from the current bull run?
“New fund offer” these days come with different objectives and themes. Along with the positive scenario of the market, “low NAV" is also the reason investors consider investing in the first place. However, in mutual funds, the growth potential of the fund irrespective of the NAV, and consistency in delivering returns at least at par with that of benchmark matter a lot along with its suitability to our future goals, risk appetite and tenure. So, be thoughtful while investing in the fund offer.
Q. What common reasons refrain many people from achieving their financial goals?
The sole purpose of 'investing' should be to achieve future goals. Many times, investors fail to achieve goals not only due to bad market conditions or changes in macroeconomic scenarios but also due to many behavioural aspects. Some of the reasons are-
- Investors invest in options just to get high returns without understanding the risk level of the instrument.
- They stop their ongoing investment hastily if performance is turning negative & do not replace the option with another suitable one.
- Investors invest in instruments without proper knowledge about it
- Investors lack 'discipline' in investing and invest as and when they 'feel to invest'.
- Investors invest in too many options and overdiversify their portfolios.
So, though the reasons are many, one should invest with at least basic knowledge about the option. We must invest with discipline, have a proper review regularly and make suitable changes accordingly. Keep your portfolio simple and easy to understand.
“Be thoughtful while investing!”