Investment mantra for admen: Stick to equity mutual fund

You generally hum their jingles, you watch the advertisements that they create and eventually buy the products that they sell to you. CNBC-TV18's special show Informed Investor will guide the advertising professionals on how to buy the best financial product.

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.
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Case study: Dhanya MB, Media Planner, RK Swamy says, “ I work in advertising firm in Chennai and I always make it a point to invest at least 30% of my salary into mutual funds and equities. Recently the markets have crashed and the rupee value has gone down – is it prudent enough to invest in export oriented stocks? Q: She seems to be a very informed investor, she knows her money and makes a point about the devaluation of the rupee. How should you put your money into export oriented stocks? Baliga: Not at this time because generally in stock markets you normally forecast as to what could happen over the next six months, next one year and invest accordingly. The rupee devaluation or the devaluation which you have seen in the last couple of weeks is already there in the stock prices of the export oriented units.
So, right now if you look forward, we are looking at reforms again setting out over the next couple of weeks. From that point to view I think one should be looking at the capital goods, infrastructure stocks and not export oriented units because whatever good news is there is already there in the price because the markets tend to discount those. Q: She invests about 30% of her salary into equities and does not forget to mention the fact that the market has crashed. For a long term investor if you mark the last 2-5 years nobody has made money in the equity markets quite honestly, do you think 30% is still the allocation that you should put in the markets or should you decrease or increase it? Mashruwala: When markets go down is when you put investment up and when markets are up you bring it down. Normally people do reverse – when markets are up is when they go aggressive and when markets are down they get scared but you should be doing exactly reverse. When markets are down start increasing your allocation to equity. Case study : Soumitra Karnik, National Creative Director, Dentsu India says, "I do not have an investment style. My wife handles all my investments for me and I do not understand the I of investment. We have couple of mutual investments; real estate is where we have invested. I keep hearing that the market is very volatile but I also keep meeting people who say you must invest in share market and this is the right time to invest. Some people also say to not even go close to share markets and I meet people who made crore out of share market.
Some people who have lost every thing that they had so I am completely at bay that who is right, who is wrong. I haven’t yet come across a single person who simplified the whole process of investment to a creative person like me who understands nothing of figures and markets. If some person or some institutions has to come to me and in a very simplistic manner explain that this is what happens when you invest with this particular investment- I will understand the process from thereon?
_PAGEBREAK_ Q: What he should be doing? Where should he start? Baliga: He has mentioned, right time to invest. I think the easiest way to make maximum amount of money is to invest at the right time, exit at the right time but the most difficult thing to do is to find out which is the right time. I think we need to work somewhere in between.
When it comes to investments yes I think he can make it as complicated as you want or make it as simple as you want. I would prefer to play it simple, try and invest only in those sectors which you understand. When you are investing in the market don’t try and invest across all sectors, don’t invest in a particular stock or a particular sector just because someone else is recommending. Q: I am sure you come across many people who have money to invest but they don’t know the right route and they don’t know the right time? Mashruwala: When it comes to investing in equity and the question whether people have made money or people have lost money. Unfortunately equity market is one place where experience doesn’t stay. So every rally, new set of people come in and when there is a fall they go away and new rally, new set of people come in or majority of that, so the experience of fall they don't withstand.
Hence we don’t have lot many people who have created immense amount of wealth by investing in equity but there are enough instances where people have stayed invested for years after years, sometimes even decades ad created huge amount of wealth.
So it all depends on a) How much money you are going to keep in equities, so that the volatility does not bother you. b) Are you willing to kind of withstand those mental pressure that come in when you think your money has gone.
So it is high level stress because people keep looking at it on a regular basis. It is not that you don’t look at it at all what happens is that when markets fall people don't look at their portfolios at all otherwise they have that ticker going on 24/7, so there are two extremes.
Normally to an investor, I would recommend look at it once a month or once a quarter because one cannot keep measuring once blood pressure all the time and keep running to the doctor since my pressure would be different at different times. Q: I have been investing in equity and a little in derivatives as well, I am looking to invest in Forex but I have no clue how should I go about it? Because you need to know everything about the industry and the company that you are investing in. So for equities there is lot of information but I don’t know how to go about forex? Baliga: As far as derivatives are concerned; equity and derivatives as well as forex, both are speculative. So when you already have some knowledge, when you invest in equity you have some knowledge and it is not your full time occupation.
I would suggest you stick to equities and derivatives and if you don’t have too much time then only stick to equities and don’t invest in derivatives because that is completely leveraged. It is possible that you make big money, you could also lose big money. Q: If one is fairly new to equity market and have Rs 5000-10000 to invest every month and you buy 2-3 equity shares of any blue-chip stock every month will it help or should one stick to investing in SIPs only? Baliga: If you are comfortable picking equity shares, if you have some understanding of whichever shares you are picking up, it is also good to pick up some shares every month. For example say HUL you can pick up possibly five shares every month and this is another type of SIP. Instead of putting in the mutual fund, paying the fund manager and the fund to manage your money you are saving on that. Q: I have two questions with respect to ad community in specific there is this saver versus investor mentality, most of them seem to be savers and there is a fear of investment. Is it just with respect to certain pockets or is there something more to this?
Baliga: Generally it is noticed that creative people don’t understand finance but it is not the other way round. Finance people are also creative because at the end of the day people like us are story tellers. We tell you this particular stock is a good buy and give you justification and reason for it being a good buy. You have accounts who are extremely creative otherwise you wouldn’t have something like the Satyam.
So even the advertising community they should plan out for the future because money is important. Creativity is your life but money is important going ahead. By only saving you are not able to beat inflation, so you need to invest. Case study: Joono Simon, ECD, Ogilvy & Mather says, “I am Joono Simon. I work with Ogilvy as Executive Creative Director. Serious investments require careful planning and it requires a lot of time and I live a busy life. So I am very conservative when it comes to investment. I invest more in SIPs and it is convenient and it doesn’t really take up too much of my mind space. If you take gold, equity and real estate as three asset classes, where do you see more red flags in the next couple of years, in short-term?” Baliga: Yes, as far as real estate is concerned clearly red flags are being raised because one, the property prices haven’t been coming down in spite of the sort of issues the sector is facing. So in our opinion it’s only a matter of time before the property prices start correcting. This may not be the right time to go in and invest. If you are buying a property to live in that is not an investment, so that I suppose one can go ahead, but if it’s pure investment I would say wait. Again when you are talking of gold, we have had extremely good run in the last year and half. So from hereon we really don’t expect the run to continue, in fact we see some correction. So both these asset classes right now for fresh investment I would say avoid. Case study: Josy John Paul, Chief Creative Officer, BBDO India says, “I would say my investment style is that I follow the Duckworth principle if you have heard that in cricket, save for a rainy day. I invest regularly, almost every six months or sometimes even every quarter I revisit my investments. I invest in the share market, not right now, but FDs a lot right now and the mutual funds off and on, not very sure about it at all and definitely the real estate. If I want to buy a house now is it better for me to break my shares or pick up a loan? Baliga: There are a couple of question which he actually asked. One of the things is he looks at his investments once in six months I think that is not enough. People should look at it more regularly, but someone like him I would say should look at his investment at least once a month.
Number two, if you are not investing directly yourself, possibly you are utilizing experts to invest on your behalf, just like the way you study your investments I think you need to study your experts, only then choose your experts. Don’t choose your experts blindly just because someone else is saying that he is investing through them.
Number three, the direct question which he asked about breaking or selling his equities and investing in real estate right now instead of taking a loan, my suggestion to him would be that he should possibly take a loan now, because our view on equities is that it should move up from here.
So it doesn’t make sense selling equities cheap to buy real estate where we are not too bullish, but in case he is buying this house for living, so I would say that he should take a loan right now and invest in the real estate. Q: That was something that came up in the survey findings as well where not too many people are aware of what emergency funds are or even what fund of funds are. If you have to sort of demystify these concepts for them what would your word be? Mashruwala: Separate things, one is emergency fund or a contingency fund that you are talking about is you keep aside certain some of money in case there are emergencies or contingencies.
It could be like a job loss. Job loss could be because of your performance or economic condition or a catastrophe or you need to migrate from one place to other temporary or permanent basis and normally we recommend that keep aside about three months mandatory expenses for contingencies.
If your income is variable in the sense that you are not a full-time employee but you are kind of consultant or whatever then you may want to keep slightly long because your income is not steady. So that's as far as emergency fund or a contingency fund is concerned. As fund of fund is concerned that’s a mutual fund product.
We know that mutual fund basically invests in a particular sector, particular asset class. It could be investing in equity, gold, debt etc. a fund of fund is which invests into mutual fund schemes. Q: Is that very risky? Mashruwala: No it depends what is the underlying. There could be one fund of fund which says that we will pick up 80% into a debt based mutual fund and 20% into equity based mutual fund, it’s perfectly fine.
There could be some fund of funds which says that we will invest into international equity funds and it could be little risky. There could be some fund of fund which says we will invest partly into a gold fund, partly into an equity fund, partly into a debt fund and then you will have those less volatilities or returns could be slightly better. So a fund of fund is a fund which puts into funds.
_PAGEBREAK_ Q: Most of the advertising people are investing in either FDs in banks or some of them in mutual funds and maybe few are investing in equities. I have some feeling and off late I have been observing mutual fund investment is being promoted by many people or they are encouraging people to invest into gold etc. Why no body talks about investments in banks when bank is definitely giving you assured returns? Mashruwala: It is not that you don't put money into bank FDs, it is perfectly fine to put money into bank FD. It only depends on when you require and how long you have been requesting. If you a are going to put money into bank FD for period of 10 years your principal remains protected but you lose heavily to inflation. Hence probably mutual fund with equity in it is a better option.
In a debt based product, it could be a debt mutual fund or a bank because bank FD interest is taxable. If you are getting 10%, and if you are going to pay 30% tax then what is in your hand is 7%. If the debt fund gives you 7-7% that is more liquidity. So it depends on what tax bracket you are in and when are you likely to require because debt mutual fund is liquid.
It is not only mutual funds or it is not only FD, it depends on your situation when you require, you cannot blindly go into FD, you cannot blindly go into debt mutual funds. Q: You said equity markets are looking positive in the coming months which are the sector that one should choose wherein the returns could be much higher? Baliga: In our opinion the reasons for the market to move up over the next couple of months would clearly be reforms flowing out because today the government doesn’t seem to have much of choice because if they want to come back in 2014 they need to generate employment and the economy has to start doing well by then.
Now if you work backwards you need to have the infrastructure projects taking off. For infrastructure projects to take off you need to have a conducive investment environment and for that you need to flow out the reforms and the window is now, you cannot delay it any further.
Based on that assumption, based on that logic and the way the political scenario today is the ground is very well laid out where they can start flowing out the reforms. In case that happens then you have the capital goods sector, the infrastructure space, banks and autos, these are the sectors which will start doing well Q: Within these sectors would you want to identify any specific stocks? Baliga: I would suggest the top quality stocks like L&T, BHEL in capital goods space. In the infrastructure we are looking at GMR Infra and GVK. Q: Now that you know advertising people start investments late and they retire early, so what are the things if I have 10 more years of work life left and want to have a comfortable retired life? What are the things that I can do now? Mashruwala: There are couple of things one can do. Since it is a decade you are talking about and it is a fairly long time. Asset classes like equity whether you do it through directly or equity mutual fund, gold as an asset class either whether you do it directly or gold exchange trade, so mutual fund which puts into gold. These are two asset classes that you can still start investing.
One thing is that be disciplined, so keep doing it every month on month and do not stop even though the prices go up or go down. Ten years is a good enough time to accumulate wealth from these two asset classes it should be perfectly fine. Q: Fairly risk averse might have the money to invest; I don’t have the time or wherewithal to research either the market or my experts. There are a dime a dozen financial advisors, planners and your bank account people who keep calling you – who to go with and if I have to trust someone where I myself don’t have the knowledge who do I go with? Mashruwala: I won’t have a clear cut answer saying do a,b,c. It is like choosing a family doctor, how do I choose? But I will give certain parameters. There are seven qualifications which are mandatory. For example to sell mutual funds there is Association for mutual funds in India and you need to be certified. So you ensure that somebody who is advising you mutual funds is certified.
Similarly for someone selling insurance you ensure that the person is IRDA certified. For financial planners, while it is not mandatory but there is a certified financial planner (CFP) certification, so he is qualified. Similarly, for stock markets check if he is broker, sub-broker or is he just advising.
You will have to see qualification and if that person is qualified. Second is how many years the person has been in profession? Lot many times we also see people doing this part time. So, we have insurance agent who is doing something else, you may not want to be with those people because they themselves are not believing in the career they are in. These are couple of parameters.
If you are in a transferable job then you probably want to pick up bank because when you go to various places they probably have a branch vis-à-vis an independent financial planner like me who has one set up in Mumbai.
So there isn’t straight way ‘do this’, ‘don’t do this’ but these are the things you should look at.