Article | Sip - Aug 27, 2016 | 15:29 PM
"So, what’s the latest buzz in the markets? By the way, which is the stocks do you think I should invest in? Yaar, I am looking for good returns in a short period of time?" These are basically the questions that I am asked by people when they realise that I am associated with Moneycontrol. Be it a party, a public lecture, society meeting, parent-teacher association (PTA), or even a press conference, these questions follow me quite like the pug in the Vodafone ads. Being an editor at India's leading business portal, you are expected to be an expert.
But, when I most humbly and honestly give them a first-hand advice, "invest in mutual funds", they seem to be a tad disappointed and recoil away. It is like, I am stating the most obvious, what they wanted was a bit more exotic. The funny thing is, people who already invest through mutual funds (MFs) are hungry for more returns, and the people who are not investing in MFs, want to make up quickly by getting more returns without having to go through the time cycle.
This is where, according to me, the problem lies, what I call the 'Dilemma of the Ever-More Returns.' Two things can be summed up:
1) Everyone wants high returns (15-20% and more)
2) Everyone wants them quick
To further fuel these desires, there will be all those anecdotes floating around of how a ‘friend of a friend’ invested a trifling sum in a 10-Rupee share, and overnight became a millionaire.
Yet, over the many years, I have realised that to build a corpus or to make money, there is just one way, the incremental investment approach. No other way truly. Let me explain it with a metaphor. To climb the Mount Everest, you have to labour through snow-filled landscape for days on, and it is only then, that you reach the top. Of course, there will be a few that will get dropped on the base-camp by air, or be better equipped. But, there is just no alternative to labour.
Similarly, achieving financial security requires commitment and application. And this is where mutual funds come into play. MFs imbue that discipline and commitment in an investor. The thumb-rule in investments is to diversify your investments, and MFs let you do that with an array of innovative products like fund of funds, exchange-traded funds, sectoral funds and so on. The returns are usually higher than those offered by traditional investments etc. The concept of compounding truly gives MF an edge over others. Also, they are easy to invest or exit and come with much transparency.
But the best deal for someone like me is that it is managed by highly-efficient professionals like fund managers, who are all the time glued to investment opportunities and taking decisions accordingly. Unlike me, they don't just follow the market or the trends, but actually, deep-dive into niches that only a few would ever do. Thus, they are more like those professional wealth managers, except that they are doing it for a much larger audience. Investing in an MF is like hiring one to look after your portfolio.
Coming back to our original dilemma. What is the need to seek advice, fish for trends, why not simply use the power of compounding to your advantage? Why go about seeking tips, when you can have experts working for you?
So next time, you bump into me at a party, PTA or anywhere, instead of asking for 'quick-rich' equities option, ask me, which are the best performing MFs and how. Possibly, I will have a lot more to answer on that, and you will not be taken aback. Remember, the Ever-More returns will come, but in due course of time.
Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully.
Are mutual funds a reasonable investment in bull market?
Indian Mutual Funds have currentlyinvested about 1.35 crore (13.5 million) SIP accounts through which investors regularly invest in Indian Mutual Fund schemes. (March 2017. Source: AMFI)
Average Assets Under Management (AAUM) of Indian Mutual Fund Industry for the month of March 2017 stood at ₹19.26 lakh crore. (Apr 2017. Source: AMFI)
Equity-oriented schemes account for around 32.8% of the industry's assets. (March 2017. Source: AMFI) Equity-oriented schemes derive 85% of their assets from individual investors. (March 2017. Source: AMFI)
HNI investors account for 20.98% of investments for a period of 12-24 months. (Source: AMFI)
Index funds usually have much lower operating expenses over actively managed funds.
This figure represents the fund's total asset base, net of fees and expenses.