If the head of a mutual fund house has access to some of the best fund managers in the business, does he really need a financial advisor? Ajit Menon, chief executive officer of PGIM India Mutual Fund, who has spent over 27 years in the Indian mutual fund sector, says he has had a financial advisor for the past 10 years. Menon believes in fixing financial goals first and chasing them. He told Moneycontrol that he is done with his retirement goal and is currently saving for his younger son’s education.
With the equity markets down 13 percent since its last peak in April, is this the right time to invest or should investors wait a little longer? The debt markets are struggling with rising yields that have put pressure on the net asset values of debt funds. Gold prices have stagnated. And international mutual funds are in a flux as the Reserve Bank of India hasn’t yet enhanced their limits. Investors have seldom had it so hard when it comes to deciding where to invest now.
Menon says as much as there is uncertainty in the markets, there is a way to invest your money sensibly. Moneycontrol asked Menon where investors should invest Rs 10 lakh now.
Is the worst behind us in the equity markets or should we wait longer? How should investors invest their money in the present market conditions?
Follow the right sequence, which is this: First, do your household budgeting. Take a look at your expenses. Then, check if you have insurance. Next step is to check your savings emergency funds. Only after all this is taken care of should you look at investments.
If you have Rs 10 lakh to invest now and are investing for the first time, look at a well-managed flexi-cap fund if you have near-term goals coming up in 3-5 years, and for a longer-term goal, a multi-cap fund works better.
For more conservative investors, a balanced advantage fund is a good choice.
If you are experienced and a more self-aware investor in the equity markets and mutual funds, you can look at allocating your money between large-cap funds, mid-cap funds and small-cap funds. Out of Rs 100 that you have set aside in equity, keep Rs 90 in these funds.
Put the remaining Rs 10 in thematic funds. Some international funds offer a good choice of thematic funds; of sectors and themes that you won’t find in Indian equity markets. Like a real-estate investment trust, which could be a good option in an inflationary kind of environment. When inflation goes up, hard assets can make for a good investment.
Asset allocation varies from person to person. But for those starting out on their investing journey, is there a ballpark asset allocation guide?
Yes, asset allocation must be customised depending on your needs and goals. But as a thumb rule, 100 less your age can be your equity allocation. So, if you’re 30 today, then 100 minus 30, that is 70, should be your equity allocation. In simple words, invest 70 percent of your money in equities. Put the rest of your money (30 percent) in fixed income.
Now, within the equity allocation of 70 percent, put around 7 percent in international equities. The remaining portion should be in Indian equities.
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Similarly, of the 30 percent allocation for fixed income, put around 5 percent in gold. Assuming, of course, that you have taken care of your emergency funds, near-term liquidity and insurance needs. Under gold, the sovereign gold bonds are good because they pay you interest every year. But if you wish to do a systematic investment plan (SIP) in gold, then a gold mutual fund is good.
Why does an investment specialist like you require a financial advisor? Do you listen to your planner?
Yes, of course I listen to my financial planner. Because money is emotional for all of us. And we make behavioural errors thinking that we know everything.
It's always wiser to have a trusted third party; a trusted advisor who can understand why we want to save and invest and then put money in an allocation that makes sure you reach your goals. Instead of, you know, just bothering with what is happening in markets today or tomorrow.
Your one, big, investment mantra?
Diversification. Not just across asset classes, but also across styles. This means that within your equity allocation, diversify across different styles of fund management; growth, value, contrarian and so on. Many of us think that just because we have our money lying in, say 4-5 equity schemes, we are diversified. The reality is that all these schemes may have invested in the same type of stocks. This results in portfolio overlaps.
What are the biggest risks that investors should watch out for?
The biggest risk will always be something that surprises us. The current risk is one of growth across economies. The risk to the growth of economies is the biggest risk. The risk of the Russia-Ukraine war getting dragged on and its after-effects on the global economy is another risk.
If oil prices remain above $100 a barrel for a much longer period, then it can have negative effects on India.
Should you invest in IPOs?
At PGIM India Mutual Fund, one of the key filters we look for in a company is consistent and positive cashflow. We consider IPOs with the same lens. Which is why last year we didn’t invest in a single IPO. Having a strong process that has downside protection built into it has been helpful.
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I recommend people should invest in IPOs through mutual funds because the mutual fund managers themselves are taking calls between what is good or bad. And that's a better way to do it.