The Hindu Business Line : `Equity funds can be made part of retirement strategies'

THE Principal Financial group, which calls itself a global retirement services outfit, is actively supporting the cause of pension reforms in India. Mr Sanjay Sachdev, CEO of Principal MF, is of the view that the pensions sector needs to be energised with the help of new policies.

"Investors in India must focus more on retirement planning," he said, adding that they need to use equities as effectively as possible. "Equities can be a key component of wealth creation strategies," he told Business Line.

Excerpts:

Way should investors try out equities in these volatile times?

Correct allocations are the key to successful investing. An exposure to the stock market is often desirable and may even be the most sensible thing under the circumstances.

The point is, you need to diversify and, depending on your risk profile, investments should be spread over various categories of assets. However, the market may remain unstable. After all, volatility cannot be wished away. But that should not dissuade an investor from considering equities.

This applies particularly to young investors who can take long-term calls. If they are not equipped with the right expertise and are afraid of investing directly, they are welcome to look at mutual funds. More specifically, they should check out diversified growth funds that have followed active strategies in order to generate wealth over time. These can be considered on the basis of factors like past performance and promoters' track record.

Is this a time to scale down expectations?

Well, it is important to have realistic expectations. At times we do go overboard on this front, especially when we begin to compare returns generated during the good years with those delivered during the not-so-good ones. As I often say, you don't really need a star fund manager in a bull market. Even the ordinary Joe can then bring home good returns. The challenge becomes bigger when a bearish phase sets in. Or at a time when extreme volatility becomes evident. In such a scenario, turning out superior performance can become an uphill task.

Can equity funds really fit into retirement strategies?

Each investor has a unique set of needs, aspirations and compulsions. But equity funds can still be made part of his retirement plan. It is desirable to follow a few simple rules. Periodic allocations, for instance, are important.

The idea is to begin early and accumulate a tidy sum by the time retirement approaches. The issue of timing the market does not arise here. Rebalancing portfolios is also a critical task; it instils a sense of discipline. Let me add here that some funds provide exit options based on what are popularly called triggers. Such triggers can be based on time and value. They may also be related to events. An investor can use triggers to book profits or stop loss.

How does Principal look at the emerging pensions scenario in this country?

India has already taken the first few steps towards establishing a liberalised regime. The formation of the pensions regulatory authority is a major milestone. We nevertheless need a lot more. Principal Financial has been closely watching the developments that have taken place recently.

We have the experience to participate in the Indian market, having done it in the US and elsewhere for long.

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