By Brijesh Damodaran
The financialisation of Indian savings has seen investments in mutual funds, stocks and even unregulated crypto exchanges. The number of new demat accounts opened and the increase in mutual fund folios speaks for itself.
Do It Yourself (DIY) investment options are preferred by millennials, and new-age fintech companies also offer avenues for online investing with a few clicks. With technology the key, investors of all ages and backgrounds started exploring the world of investing, and equity was the preferred choice of investment. However, most of the time asset allocation took a back seat.
The period from April 2020 to early part of 2022 was a period when the markets were on the rise. And the returns for new investors were all in the green, most of the time in double digits, too. And with the markets going in only one direction, the new investors were on a roll.
Let us now pause for a moment and look at how an investor with professional guidance made this investment journey from 2018 till date. A 32-year-old young man with a young family and working in an MNC had started investing a certain percentage of his income in bank fixed deposits and was curious about mutual funds. He started investing small amounts of money in mutual funds but did not have the courage to take big bets. So he got in touch with a professional investment advisor.
Realising that the client was of a conservative investor and moderately risk-averse, the asset allocation was distributed evenly in debt (mostly in liquid funds) and equity tilted largely towards large cap schemes. Over the next few years, the asset allocation continued. And then in mid-2020 during the pandemic, he lost his job and that affected his investments. .
Unable to keep track of his investments, he took the help of the financial advisor who had set a proper asset allocation strategy for him. As a result, he rode the 18 months of joblessness with confidence. So, investing is not only about generating income and creating wealth. It is also about the Emotional Quotient (EQ) in the entire journey.
If the financial advisor had not set up the asset allocation in line with the risk appetite and risk tolerance of the investor, the period of 18 months could have been of a different nature . One can go on about multiple if’s, but the approach is to ensure that there is cash flow at all times. The choice of the asset class and the time horizon of the asset class should not in any way hamper your liquidity needs.
The writer is managing partner, BellWether Associates