At Personalfn, we routinely interact with investors who have made incorrect investment decisions; risk-averse investors with investments in high-risk investment avenues and investors holding investment portfolios misaligned to their needs are the order of the day.
A lot has been said and written about unscrupulous investment advisors and their vile operations. Fund houses indulging in questionable activities in a mad rush for net assets, fail to raise eyebrows anymore.
However what surprises us is the degree of indifference displayed by investors while making investment decisions. We fail to understand how investors are willing to part with their hard-earned monies without conducting a thorough assessment of the proposed investment avenue. The most often-heard refrain from investors is - "I got invested because my investment advisor asked me to do so". And sadly, the implicit faith displayed by investors is often misplaced.
Another 'rationale' for making investments is that investors' friends/relatives are invested in the same avenues and that their investments paid off. Firstly, friends/relatives need not qualify as expert investment advisors. Secondly, what's right for one investor could be inappropriate for another. In other words, the concept of "one size fits all" doesn't work while investing.
Investors would do well to realise that they must shoulder greater responsibility for their investment decisions. Sure, we appreciate that retail investors are not experts and they have to rely on investment advisors, among others while getting invested. But they can certainly de-risk the investment process by asking relevant questions. For example, when the investment advisor recommends a given investment avenue, some questions that must be raised are:
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Why should the recommended investment be chosen?
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What are the risks involved?
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What are the alternatives available?
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How do the alternatives compare vis-à-vis the recommended investment?
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In what scenario would the investment fail to deliver in an expected manner?
If investors are aware of all the necessary information, they would certainly make an informed investment decision. Investors are entitled to have all the answers before getting invested. And given that it's their money at stake, the same should be a good enough reason for taking on a more proactive role in the investment process.
It was another volatile week at the markets. The BSE Sensex shed 0.99 per cent during the week to close at 13,796 points; the S&P CNX Nifty fell by 0.97 per cent before settling at 4,077 points. The CNX Midcap closed at 5,295 points (down by 0.99%).
Leading open-ended equity funds
| Equity Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| ICICI Pru. FMCG | 40.09 | 3.19% | 1.21% | -0.10% | -2.98% | 6.74% | 0.37% |
| Reliance Banking | 39.75 | 2.45% | 10.85% | 8.13% | 16.30% | 7.69% | 0.20% |
| Stanchart Premier | 14.83 | 2.43% | 9.12% | 19.84% | 8.74% | 8.82% | 0.22% |
| Birla Midcap | 66.87 | 1.50% | 8.70% | 5.37% | 6.84% | 7.47% | 0.34% |
| Reliance Media & Ent. | 26.70 | 1.49% | 5.53% | 23.74% | 24.97% | 7.83% | 0.41% |
(The Sharpe Ratio is a measure of the returns offered by the fund vis-à-vis those offered by a risk-free instrument) (Standard deviation highlights the element of risk associated with the fund.)
Sector funds and mid cap funds dominated proceedings in the equity funds segment. ICICI Prudential FMCG (3.19 per cent) occupied the top position, followed by Reliance Banking (2.45 per cent). Stanchart Premier (2.43 per cent) and Birla Midcap (1.50 per cent) also featured among the top performers.
Leading open-ended long-term debt funds
| Debt Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| Birla Sun Life Income | 26.29 | 0.46% | 1.26% | 4.11% | 8.65% | 0.45% | -0.07% |
| Birla Dynamic Bond | 11.58 | 0.21% | 0.83% | 3.31% | 7.05% | 0.20% | -0.34% |
| HSBC Income IP | 12.41 | 0.20% | 0.51% | 1.21% | 4.48% | 0.40% | -0.49% |
| Birla Income Plus | 30.53 | 0.20% | 0.45% | 1.29% | 4.80% | 0.36% | -0.50% |
| ICICI Pru. LT Floating | 11.63 | 0.20% | 0.74% | 3.60% | 6.92% | 0.08% | -0.75% |
The 10-Yr benchmark 8.07 per cent GOI yield closed at 8.13 per cent (May 11, 2007), 2 basis points below the previous weekly close. Bond yields and prices are inversely related, with falling yields translating into higher bond prices and net asset value for debt fund investors.
Birla Sun Life Income (0.46 per cent) emerged as the top performer in the long-term debt funds segment. Birla Dynamic Bond (0.21 per cent) and HSBC Income IP (0.20 per cent) came in at second and third positions respectively.
Leading open-ended balanced funds
| Balanced Funds | NAV (Rs) | 1-Wk | 1-Mth | 6-Mth | 1-Yr | SD | SR |
| DSP ML Balanced | 39.86 | 0.82% | 5.60% | 6.19% | 10.49% | 5.14% | 0.39% |
| BOB Balanced | 23.62 | 0.72% | 5.54% | 2.70% | -4.99% | 6.34% | 0.19% |
| Birla Sun Life 95 | 183.62 | 0.21% | 4.37% | 5.94% | 10.06% | 5.20% | 0.37% |
| CanBalanced II | 37.60 | 0.19% | 4.76% | 0.00% | 0.32% | 5.26% | 0.44% |
| Principal Balanced | 22.09 | 0.18% | 4.49% | 0.64% | -2.69% | 5.27% | 0.25% |
DSP ML Balanced (0.82 pper cent) lead the charge in the balanced funds segment. BOB Balanced (0.72%) also pitched in a noteworthy performance.
Investors often enquire how they should go about building a mutual fund portfolio which will involve minimal tracking and can also help them achieve their investment objectives over the long-term. The task is complicated, given that there are a number of mutual funds in the market, many of which seem to say (as dictated by the investment objective) and do (in terms of investments) totally different things.
How to build a mutual fund portfolio
This week, we put up a 2-step strategy to help risk-taking investors build a long-term mutual fund portfolio. If the process appears a little difficult and time-consuming, investors need not worry. Let's not forget that investing is a full-time activity.
Hence it is important to engage the services of a competent and experienced investment advisor who can help you build a portfolio on the lines recommended by us. Of course, you as an investor would do well to ask all the relevant questions and participate wholeheartedly in the investment process.
By Personalfn.com, a financial planning initiative. It can be reached at info@personalfn.com. Personalfn.com also publishes a free-to-download financial planning guide, Money Simplified. To get a copy of the latest issue -- Real Estate & You - please click here.
