The Hindu Business Line : `The merits of orderly, recurring allocations are just being ignored'

MR VIRAJ C Ghatlia, Head - Financial Planning, IL&FS Investsmart, does a bit of plain-speaking when he says that many investors, in their bid to chase the highest returns, have actually developed suicidal tendencies, a situation that has been compounded by a conspicuous absence of well-defined plans.

Excerpts:

At this point, what are the commonest mistakes being committed?

It is clear to me that many investors are blindly pursuing strategies that should be best avoided. I find them, for instance, often moving their money from one NFO of a fund to another quite unnecessarily. Existing funds, including ones with decent track records, are sometimes not being paid the attention they deserve. This is simply not right.

On another front, I find people are often taking decisions without proper financial plans to back their moves. Typically, an investor may not be able to say for sure why he or she is taking such decisions in the first place. The usual rationale - "I am only interested in getting the best returns" - sounds lame if you consider so many other important factors.

How can such wrong investment strategies be corrected?

A certain measure of positive thinking is required. Many of us are forever eager to book early profits. Too early at times, in my opinion. Others seem to be interested entirely in making lump-sum investments. The merits of orderly, recurring allocations are just being ignored. This is a bad habit and should be modified immediately.

Fortunately, in some quarters, I do find people working out good systematic investment programmes. This has just started in this country and must develop into a far greater movement. A lot of work must to be done in order to give it the momentum it needs.

At yet another level, I find people are ignorant about such basic things as compounding. The so-called `power of compounding' just cannot be overlooked like this.

Aren't MFs worsening the situation by constantly supplying NFOs?

We are witnessing a virtual explosion of new offers. In many cases these are diversified equity products with smart names. Of course, each fund has a distinct mandate and a clear set of investment objectives. The question is, should investors get into these at the cost of other important options ... for one thing, they need to be told about the costs involved. Investment advisors can do serious work on this front.

As I said before, you must check out existing funds too. For example, if the market declines by, say, 400 points, you should be ready with an additional cheque. That sort of discipline is necessary.

How does IL&FS Investsmart view the MF market?

We have instituted a fairly regimented approach. The PMS we have for our customers has its own USP. It caters to clients in different ways, subject to their risk profiles. For instance, we avoid a fund that does not have a sufficiently long track record, regardless of what people may think. This is because a fund manager's true worth is not known in, say, a couple of months' time. He should be given a decent length of time to perform before an opinion is formed.

Depending on circumstances, we may even encourage clients to stagger their allocations over a few weeks. We also agree with the general belief that a fund manager can easily do well in a bull market; the real test comes when he has to handle consistently bearish sentiments.

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