Indian investors are shedding their inhibitions and warming up to the idea of investing in mutual funds. Product recategorization, a recent trend in the industry, will also help the investors choose the right product based on their risk profile and time period of investment, says Rajesh Patwardhan, Chief Marketing Officer at LIC Mutual Fund. In an exclusive interview with Sanjeev Sinha, Patwardhan talks about the benefits of investing in mutual funds and the latest trends in the industry which will benefit buyers. Excerpts:
What is the best way to invest in mutual funds? Should one invest in MFs directly or through the SIP route?
Mutual funds have always been a popular investment vehicle for investors across the globe. Before one starts investing in any fund, it is a must to do a thorough research on the plans available vis-à-vis his/ her needs. The first step is to analyze one’s risk taking profile. The second is to identify an ideal asset allocation mix, and then the third is to start investing. Given the volatility of the market, Systematic Investment Plan (SIP) is a better tool to enter the territory. However, if one has a lumpsum amount of money to invest, he/she can do so by investing in the money market and beginning with a Systematic Transfer Plan ( STP) to equity funds. Mutual funds provide flexibility and a diversified portfolio/ bouquet of products that help the customers in taking the right decision regarding their goals.
Nowadays the Daily SIP seems to be an in-thing in MFs. What is it exactly and why is it making waves currently?
India is a country of savers and, hence, people here can invest a fixed amount on a monthly basis like one does in a recurring deposit at a bank or post office. Daily SIP is like investing a fixed amount into the mutual funds on an everyday basis, that captures the volatility and rides over it. Currently, industry SIP book has reached more than Rs 7200 cr on monthly basis and is growing very rapidly. This money is not just supporting the equity market, but also balancing the outflow by FIIs. Investing daily will certainly help in averaging your investment cost better, as you will be making many more transactions over the period. The Daily SIP is gaining recognition among investors as it encourages investing in a disciplined manner without worrying about the market volatility and timing of the market.
How do the Daily SIPs compare with, say, weekly and monthly SIPs ?
The Indian equity market is expected to remain volatile for a long period of time and it is extremely difficult to time each move in sync with the market. What is more important is that one needs to give more time to understand the market as opposed to anticipating the market movements. For this, there is no better or more effective tool than Daily SIPs. These not only completely capture volatility & average out the market, but also fully eliminate the element of timing the market, and hence are superior to all other forms of SIPs.
What are the pros and cons of Daily SIPs? Whom are they suitable for?
With the growing popularity of SIPs, a large number of investors are getting increasingly aware of the landscape and both their positives and negatives. With mutual funds, one has a large number of transactions in one’s portfolio & bank statement, which is the only demerit. It’s suitable more for investors who want to be active participants in the market on a daily basis or investors who trade in the equity market. However, from a broader perspective, the smaller ticket size enables even daily wage earners to invest in it, besides those investor classes that have a daily cash flow, like business men, etc.
Why should one go for it? Can one expect better returns?
For investors with limited knowledge, time or money, mutual funds can provide simplicity and other benefits. One should go for it as it averages out the market volatility. One can expect higher returns as compared to regular SIPs in volatile times. This is another effective tool to invest in the equity market by taking smaller baby steps without fearing the volatility of the stock market.
What are the latest trends in the MF industry which will benefit buyers?
During the last few years, it has been observed that mutual funds have become an important part of the investment matrix. The investment industry in India has gone through a large array of reinventions, given changes in monetary and political policies of the government.
More and more investors now understand the merits of saving & investing. Also, it is a fact that equity is the only asset class which can beat inflation. Indian investors are shedding their inhibitions and warming up to the idea of investing in mutual funds. Product recategorization, a recent trend in the industry, will also help the investors choose the right product based on their risk profile & time period of investment.
Thus, to sum up, I can say that mutual funds have firmly established their foothold in the Indian market and become more investor-friendly. For the evolved Indian customer, mutual funds are among the most transparent and cost-effective products available. Indian investors must choose products wisely & stay invested throughout the various cycles of the market. Consistent involvement and assessment will ensure sticking to the right asset allocation and help avoid ill-timing of the market or churning the portfolio.