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A chat with investors, and what I learnt

If one has a time frame of five to seven years for equity investing, lump sums are equally effective.

Published: 01st July 2019 09:58 AM  |   Last Updated: 01st July 2019 09:58 AM   |  A+A-

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I recently featured as an investment expert on a public platform, where I addressed the investment queries of mutual fund investors. As always, I found the experience refreshing and found myself better educated about the investment thought processes of some of the participants.To start with, I was pleased to note that almost every investor that raised queries indicated they had a time horizon of 10 to 15 years, which is a huge step in the right direction. Most of them seemed to prefer making their investments via a Systematic Investment Plan (SIP), which too was correct, given that they were retail investors.

I am of the belief that if one has a time frame of five to seven years for equity investing, lump sums are equally effective. This however, is more so the case for those who usually have larger deployable sums. 

There was an investor who wanted to accumulate units of a fund, which was fine per se, but he wanted to do so because of a low Net Asset Value (NAV). This is a common mistake that investors make, forgetting that the reason for a lower NAV could well be, non-performance. This is akin to the mistake investors in the stock market often make, assuming that a low-priced stock is a value buy.

There was another gentleman who had purchased a basket of hybrid equity funds but was unhappy with their performance in the last one year, and was pondering whether to exit those investments. I pointed out to him that though there has been a relative lag in the one-year performance, the three and five year performances remained satisfactory. Furthermore, given that these were Hybrid Funds, there was also the relative downside protection factor that he needed to consider.

There was also a young lady who was very optimistic about the prospects of the banking industry and wanted to ramp up her portfolio with banking funds. I pointed out to her that unless she was considering a tactical asset allocation and had either the requisite expertise to undertake it or an advisor who would, it might not be a bad idea to leave it to the fund manager to do so in the diversified funds she held, if they deemed it fit. 

Finally, there was a young gentleman who wanted to know if his SIP of `35,000 was enough to achieve a corpus of Rs 2.5 crore that he wished to earmark for his daughter’s higher studies after 16 years. I suggested that if his budget permitted him, he should up his SIP by `10,000 to `45,000 per month so that, assuming a conservative CAGR of 12 per cent, he could achieve his target sans too much difficulty.Overall, it felt good to interact with and hopefully, to have been of assistance to so many investors. The organisers seem to have liked it too as the invite to their next session has already reached my inbox. 

Ashok Kumar heads LKW-INDIA. He can be reached at ceolotus@hotmail.com

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