‘Begin early and invest with a goal in mind’

“Two important things that ideal investors should do is to invest with a goal in mind and not be heavy on one particular asset class like equity. Also, beginning early and shedding behavioural biases like buying high and selling low are characteristic of ideal investors,” said Aniruddha Chaudhuri, Head-Retail Sales, ICICI Prudential Asset Management Company. He was speaking at a webinar on ‘Decoding an Ideal Investor’, jointly presented by BusinessLine and ICICI Prudential Mutual Fund on Saturday.

Investors should ensure proper asset allocation of their savings into asset classes such as equity, debt, gold and should reallocate the investments based on the returns a particular asset class has earned, he added. Chaudhuri was in conversation with BusinessLine’s Senior Assistant Editor, Parvatha Vardhini C.

Another important tenet for ideal investors is patience. Investors must give their investments time to perform. A longer holding period will help them benefit from the power of compounding and earn returns that beat inflation. Investors should not sell their investments if their mutual funds are not performing for a year or two.

Age and investment

If investors have a goal to create a retirement corpus, then as they are nearing that time period, it is better to move some of their equity investments into debt. For investors who have retired and have a corpus that they want to invest to earn a regular income, Chaudhuri advised that they can go for hybrid funds with a systematic withdrawal plan instead of investing in a pure equity or sectoral fund.

For investors who are just starting off their investment journey, the allocation to equity can be high. There are thumb rules for this like subtracting your age from 100 to arrive at your equity allocation, Chaudhuri said.

Also, past performance cannot be an indicator of future performance, and investors should temper their return expectations accordingly. “When you are investing in equity, you are investing into the growth of nominal GDP of a country,” said Chaudhuri. “If you think the GDP is going to grow by 5-6 per cent in real terms, that will give you a ballpark figure of what your return expectations should be,” he concluded.