Nilanjan Dey

THIS is January and time to draft a set of New Year resolutions. Like everybody else, mutual fund enthusiasts too must write down their own dos and don'ts and focus on them for the rest of the year.

Here is a list of resolutions, written in the first person, especially targeted at those who are not too disciplined.

I shall create the most appropriate asset allocation strategy: This shall form the very basis of my approach to investing through funds. I shall stick to it through thick and thin but leave room for changes whenever such changes become necessary. Also, I shall never be too far removed from cash in by effort to devise the best-possible and the most well-defined portfolio. The latter should be diversified and hold relatively steady even when the market turns negative in a big way.

I shall not churn too excessively: I shall not be tempted too often to enter funds and exit them at the first opportunity. I shall also not try to time the market every now and then.

On the other hand, I shall set targets as part of my financial plan. At the same time, I shall start investing in small but regular doses.

I shall be aware of costs: I shall be careful when it comes to keeping expenses under control. Getting in and out as a mater of habit shall increase my costs, something that may well be avoided. SIPs (systematic investment plans) are an idea that I shall consider actively; these, after all, pave the way for rupee cost averaging.

I shall not fall prey to dishonest distributors: I shall be aware of distributors who can sweet-talk me into buying funds that I do not really need. Or convince me to abruptly revise my asset allocation for private gains.

Nor shall I be swayed by attractively-printed leaflets that praise particular funds in powerful language. Such literature, I know, is often heavy on specifics but may omit important facts about the funds that are talking about.

Working out an elaborate list of do's and don't's, however, will be futile if you do not know yourself fully. We are referring to your requirements, present and future.

As an investor who is staking his or her hard-earned resources, you will have to be aware of your latest situation in terms of income, expenses, savings, taxes and such other parameters.

Choose a financial planner who will work closely with you. It is important to work out a broadbased portfolio, complete with the best options that are available.

Mutual funds, one hopes, will help create more wealth in the New Year. This year, please make sure to advance that process of wealth generation by leaving no stone unturned. Account for all your requirements, add value to your holdings and strengthen your portfolio.

May be, you could even make a few critical changes to the portfolio that you have already created for yourself. You may consider investing in a few passively-managed index funds. Or look at tax-saving funds with their three-year lock-in periods. Or even be gutsy enough to enter the choicest sector funds.

Here's hoping that 2005 will be a good year for the MF investor.

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(This article was published in the Business Line print edition dated January 3, 2005)
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