Investment mantra for admen: Stick to equity mutual fund

Talking to CNBC-TV18's Sonia Shenoy, two of India’s brightest financial minds Ambareesh Baliga, COO of Way2Wealth, and Gaurav Mashruwala, Director of A Cutting Edge will guide

CNBC-TV18's special Informed Investor guides different investor communities on how to invest in the market? Experts will give the best tips on where to put money and what the most lucrative opportunities in the business are?

Brief about advertising professionals:

The advertising community is a very young lot, so 70% of our respondents are aged between 20 and 40 and that will give an indication of perhaps how high their risk taking ability can be from hereon. The income range of 90% of our respondents are about Rs 0-10 lakhs and data shows that more than 50% of those surveyed want to avoid risk completely.

Almost 30% are cautious about investment which is not entirely a bad thing, but here is the shocker, only 18% were willing to take risks even if adequate research was provided to them. So that’s the kind of mindset that the ad community is working with. The one startling fact and perhaps understandably so is that 60% respondents are not at all comfortable to investing in the equity markets which maybe because of low financial knowledge etc. Out of the total, 25% deposit their money in banks and only a mere 20% invest in stocks.

Case study : Jishnu Sen, President and CEO, Grey India  says, "The immediate thing I would tell everybody is that you must invest, don’t make the mistake of not investing, When you do take a good balance of risk and security take the risk because you are young, keep security because you never know when you will need that money."

Here are some investment strategies. Also watch the accompanying video.

Q: For Amateur investors who don't have the time and financial knowledge to invest into the markets what kind of offerings are there today?

Mashruwala: It depends for what they are saying. Invariably these problems occur because they have never sat down and made a list of their responsibilities and dreams. Once that is articulated, things become very, very easy, because if you are saving for something which is likely to occur in two to three years time you can pick up a fixed deposit.

Or one can even probably buy a debt mutual fund, there are various kind of bonds or you can even be doing something like as simple as recurring deposit, keep setting aside money every month. If you are looking for something which is likely to happen after 7-8-9-10 years then equity could be a route.

You said that they are not very comfortable with equity which I can understand, but there could be equity mutual fund. You are putting in small amounts on regular basis and since it’s required after 8-10 years certain amount of volatility will not kind of put you into nervousness. We have plethora of products, but the goals are not defined and hence the entire confusion. The confusion begins from there.

Q: You were shocked at the concept that only 20% people invest in equities. But someone who wants to put in their money. We have heard a lot of people say that we may not know what to do and where to put the money in the equity markets? What are the top three or four rules that one should really follow when they enter into the market?

Baliga: Basically when you are entering the equity markets you need to do some amount of research. You should have some background of where you are investing and being with the advertisement field surely they are working with people like Hindustan Lever in the consumer sector. You are dealing with someone like a Bharti in the telecom sector.

So, the sectors where you have at least some idea I think you should pick up stocks from those sectors. But at the same time yes, I think you should be disciplined. Like I said, you should be doing some amount of research and finally you should have enough time to devote for your investments. If you don’t have time to devote for your investments don’t invest. Just put money in FDs.

Q: What about something like debt funds which are more liquid than fixed deposits (FDs), more tax efficient and they give you a better free tax return as well? Would you advice safe investors to put their money there?

Mashruwala: Safety is kind of mixed notion because the moment you part with your money you have taken a risk. Now some risk is transparent, some are not. Risk in equity market or gold is transparent because everyday you get a price, you say that you bought a particular mutual fund the NAV went up or you bought a particular stock it went up or down.

When we invest in a fixed deposit or debt fund there isn’t any ticker that says how much you lost to inflation and because it is not transparent, we find it safe but everything is risky and everything is safe based on tenure. With regards to debt mutual funds, if you are in a higher tax bracket then probably debt mutual funds are a slightly better option because the dividends that we earn from debt mutual funds is tax free . If you put money in fixed deposit then the interest that comes you end up paying tax on it that is number one.

Debt mutual funds will have slightly more equity compared to fixed deposits. If I open a FD of Rs 1 lakh, if I require Rs 70,000,  I may have to break the entire fixed deposit though we now have banks who open in multiples of Rs 1 or Rs 10. If it is debt mutual fund, it is to that extent easier because you just write a redemption slip and whatever amount you require you can take it out. So based on the tax bracket that you are in and the kind of liquidity needs that you have you can pick up a debt fund as well.

Q: For someone who is very conservative and doesn’t have too much money on hand month-on-month for investments what would you advice is the best way to go ahead with as little as Rs 5000-10000 a month to invest? Second, do you think it’s a safe option to invest in paper gold? Is it safe or wise to invest in small properties in upcoming satellite towns or places like Pune, Baner or Panvel?

Baliga: With Rs 5000 it is very difficult to invest directly into equities. I would assume that you don’t have so much of time to study and look at equities, so I would suggest going in for an systematic investment plan (SIP) where you set aside Rs 1000-Rs 2000 every month for equity mutual fund. Similarly put aside another Rs 1000-2000 for a debt mutual fund, so that its equally balance, you have equity as well as debt and you can possibly invest over the next three or five years, so that your investments get averaged out and you get a much better return.

Mashurwala: Rs 5,000-7000-1000 paper gold as an Gold ETF is one of the option and you should consider it because the levels are high but there can never be a portfolio where part of your portfolio is not giving negative returns otherwise you are not diversified enough. Gold is something which has a different trend compared to debt and equity. So normally debt and equity has inverse relationship so right now we are seeing FDs giving good return, your equity is negative. So if you see historically when equities were doing well FDs weren’t doing that, so they have inverse relationship.