Every CXO has a justification of his/her NFO. In fact, the Mutual fund industry does one NFO every alternate day! Thank God for small mercies that they are not allowed to change the face value or the issue price. Many of us may not need the Coffee fund from Brazil or the Pharma fund which invests in start-ups in Israel, Japan, and China fund.
I see portfolios with 12-15 schemes very regularly - and this would be in 3 large-cap funds, 3 Mid-cap funds, 2 small-cap funds, 5 debt funds and the rest in ‘Balanced Advantage Fund’. Then there are 3-4 Children plans (mostly ULIP), Pension Plan, Endowment plan and the obvious PPF, NPS, Company Provident fund, bank fixed deposits, a demat account with a bunch of direct equity, some government bonds, etc.
This ‘portfolio’ is created by an investor along with his AGENT. For the richer clients there could be one or two PMS schemes to add to this noise. Investments are an important part of the Financial planning process. You need investments to help you buy a house, replace cars, and meet many other financial goals, but hey, it does not have to be so long. Imagine if the Lord or Master of the house dies tonight.
How will his not-so-enthusiastic widow react to this portfolio? I guess she will ask the following questions:
Why so many funds?
What is the purpose of each fund - did you have any specific goal in mind?
How am I supposed to liquidate them - in which order?
Will this last till my life-time?
How do I manage this complex portfolio?
Why did you not nominate me in 4 folios where your brother is the second holder?
Why is there a spelling mistake in my name in xyz mutual fund?
How can you avoid this scenario in your house?
It is simple. Sit with your family and discuss your portfolio. Your spouse and children over 14 should know enough about your investments. If they feel this is too complex - ask yourselves (and them) as to how to reduce the complexity.
Shift mutual funds from dividend schemes to growth schemes. Make sure that all units are held in joint names and there is a nominee. Make your will - it does not cost much, and it is very important if you have a piece of real estate in your name - even if you and your spouse are holding it in Joint names. Do it today. Sorry, do it NOW.
If your family does not want to handle such a complicated portfolio, simplify it!
Teach them how to smell opportunities and the power of compounding, index funds, Term insurance, and simple index funds. Tell them the power of Focus - and the importance of simplicity.
Learn to control your ego - it takes a great toll on your portfolio and your health!
writes at www.subramoney.com and has authored the best seller ‘Retire Rich - Invest Rs 40 a day’