The "Why" of Women Investing

If you teach a man to fish, he'll eat for a lifetime. But you teach a woman to fish and she’ll feed the whole village.” – Hillary Clinton

The above quote truly explains why each one of us, the women tribe must strive and take a step ahead towards financial education.

I recently read an article about women who have broken the glass ceiling and ventured into unconventional careers, traditionally dominated by men. A lady bus driver Prema Ramappa in Bangalore, Shatbhi Basu, heading a professional bartending institute, Harshini Kanhekar from Nagpur the first and only woman firefighter in our country and many more. It is heartening to see, women aspiring, believing and achieving.

But another sad truth was revealed in the latest round of National Family Health Survey done once in a decade. In 2005-06, 43% married women in the age group of 15-49 yrs were working which has declined to 31% in 2015-16. And if you have to further drill down on how many of these working women take their investing decisions, the number will shrink dramatically.

When it comes to investing, it is unfortunate how most women develop cold feet. Most depend on their fathers, husbands and spouses or even sons in the later part of their lives to help them with their investments, seldom taking control.

It surprises me how women go to great depths in choosing the colour of their walls and curtains, child’s school, the latest home appliances and fixing household budgets, planning holidays amongst many other things. But will shun money related conversations akin to avoiding a mad cow on the road.

Just as it is important to know the whereabouts of your spouse Ladies; it is equally important to know the whereabouts of your money too.

Let us approach some common apprehensions with logical reasons:

But I am a housewife, my husband makes money and invests it too

That is great! Things change, circumstances can change. Do you know that average life expectancy for women in India is at 68 years while for men it is 64 years. (Source: niti.gov.in) While averages can be misleading, in all probabilities many women will outlive their men, might end up being beneficiaries of insurance benefits. Investing can be intimidating to start and learn in later stages of your life, hence it is prudent to take interest. Also when you are responsible for many small & large household decisions, why not surprise your spouse with gaining financial awareness and help him with investing decisions as well?
With divorce rates going up and women in receipt of alimonies, life has its own way of challenging us out of our comfort zone. With sudden piles of cash come sudden well-wishers with dubious financial wisdom. Being Aware is better than Beware! 

I make my money but I have no interest in managing it. We have divided our functions

So you are an independent woman but ‘dependent’ in the truest sense. No empowerment is complete without financial empowerment. And financial empowerment can only be achieved by taking charge of you investments. Money is just a means to the end, and this end may be really far. Wealth you create is not just a digit in your bank account but it is your safety net which needs to grow and it is not just your right but your duty and responsibility to know how you grow this cushion for crucial and unforeseen times ahead. I have seen more and enough women leaving lucrative careers to fulfill their prime responsibility as care givers; be it to their ailing parents or growing kids. As Nassim Taleb says, month salary is an addiction. If this addiction is withdrawn for some unfortunate reasons where you have to stop your employment, it is your investment income which will top up to provide the sense of security in absence of the salary.

And on dividing functions, just barter by dividing some household chores to the men in your life. So learn to invest or learn to delegate (to a financial advisor)

The men: My father/husband/brother blah do a good job with investing

There are no studies which prove the superiority of men when it comes to handling investments. On the contrary, women are known to be emotionally stronger than men, less prone to panic and fickle decision making. These are qualities of passive investing which can have great benefits over the long term to the overall portfolio. A recent research paper submitted by University of Florida and Singapore Management University tested the hypothesis whether Alpha males are worse investors and tend to underperform? Investors with higher-than-average testosterone levels “trade more frequently [and] have a stronger preference for lottery-like stocks” they concluded. I do not wish to generalize here and world’s greatest investors are men indeed, who have developed the skill over their lifetimes. But Girl! the broader point is your average Joe is no different than the average Jane that you consider yourself.

I have no time for investing activity

As a woman, you find time to groom yourself, you find time to spend with your family, to cook them their favorite meal, you find time to shop for those much needed shoes and accessories you need to wear for the upcoming functions and you find time for your holidays. There is no such thing as being busy, it is all about priorities. You need to find time. Start with 30 minutes a week dedicated to reading about investing and slowly gather pace. The pace will automatically go up as your interest goes up.

I am scared of investing, I see people making losses in stocks so I save money in my bank account

Investing is a broader term. It encompasses various options and tools to effectively grow your money across assets like fixed income, equity, real estate and the all-time favorite gold. Saving in your bank account will never be enough till they find a rightful place to be employed and earn you more money. It is criminal to keep your money lying idle, be it in your bank, under the clothes shelf or the kitchen cabinet.  The pace of growth of your money will have to be higher than the pace of growth in the prices of things you will need to buy, experiences you need to give yourself.

Have any more excuses? Bounce them off to me and we can reason them out till you start taking interest in your financial journey.

Fixed Income Fund Series1- Analysing Liquid Funds

This post is inspired by my observations on Twitter. I am beginning to realize that there is scant awareness on Fixed Income in general. Fixed Income Funds in particular, are a poorly treated or debated cousin in comparison to the Equity Funds category. Consider it my professional bias, as I always conveniently presumed that atleast the Liquid Fund category - the plainest vanilla product from the Fixed Income stable, needs no education and everyone who trades and invests in the markets for a living or their interest understands them thoroughly. Turns out that is not the case.

Fixed Income Funds have many confusing sub categories, hell yes I have to admit that. Not possible even for the pros to figure without explanation. Here, I shall try and simplify on the Liquid Funds to begin with. Hopefully, I shall throw light on other categories too, sooner than later.

What is a Liquid Fund?

A scheme that does not invest into equities at all. Yeah! You read it right, we have funds like that too. A scheme which will invest in debt, money market instruments which mature within 91 days. Just like if you borrow money from a friend and have to return it back, similarly the GOI, banks, corporates, financial institutions, NBFCs also come to the market to fund their working capital requirements. Their papers are subscribed by the mutual funds and others. The thing is your credit score is irrelevant and default imminent ;) but these entities in debt markets need a short term rating to do so and history of default so far in the category has been extremely far and few.

Why do you need a Liquid Fund?

This is essentially a tool that you use for temporary cash parking. This tenure can be as low as a single day to as high as the time you gain salvation in your future lives. If you are an ultra-conservative saver and keep money under a mat, you need liquid funds. If you are a fan of Fixed Deposits, you have committed a crime and if you let it sleep in Current/Savings account, your crime just doubled. Reasons enough for you to have a liquid fund.

Who are the investors in Liquid Funds?

As on February 2018, Out of the total industry size of 22.2 lac crores, approximately 12 lac crores is in fixed income funds, out of which 3.87 lac cores is in liquid and money market funds.

Average AUM in Liquid Funds as on 31st Dec 2017
Investor Classification	AUM (Rs. Cr)	% to Total
Corporates	238256.63	83.22
Banks/FIs	9603.31	3.35
FIIs	49.75	0.02
High Networth Individuals*	30864.11	10.78
Retail	7530.53	2.63
Source : Amfi

As you can see from the data, 87% of investors in the category are institutional in nature while HNIs & retail just about hold 13%. The smart money already lies in here.

How to Choose a Liquid Fund?

1 month rolling returns for the period 2013-2018  on a daily rolling basis
	Minimum	Maximum	Average
Liquid Fund Category Average (Direct Plans)	5.16	10.89	7.86
CRISIL Liquid Fund Index	2.08	15.44	7.80
* The funds considered are more than 1000 crs in AUM

Funds between 10 bps of average returns	Total	%
31	39	79%
Source : Icra Research

A 1 month daily rolling return analysis for a 5 year period since the advent of direct plans shows an average return of approximately 7.86% for the category, with a standard deviation of 1.15. 31 funds out of the 39 considered in the analysis generate returns between 10 bps of the category average range.  The reason I mentioned the category average and not scheme specific is, that it is almost impossible to differentiate one liquid fund from the other. Chasing the alpha, tracking sharpe ratios, calculating the momentum, top quartile performers, sector breakup analysis are indeed non-starters for the category and will not add value but keep one sufficiently busy. It is a zero sum game over a period of time. And for those, who will now ask looking at the above on how can I invest in Crisil Liquid Fund Index, you cannot! The reasons it looks fabulous on max returns generated is technical and explicable. But we can skip that.

 Then what should one do?

Pay attention to a few details then just sit back and relax.

SEBI Guidelines: Post the Amtek Auto crisis, SEBI realized that it was prudent to have sectoral limits for mutual fund schemes. Currently, a debt oriented MF scheme cannot invest more than 40% of their corpus into NBFCs & Housing Finance Companies. Not more than 25% of the scheme corpus in NBFCs at all. The single issuer limit is capped at 10 % & 12% with requisite approvals. There is no limit to holding G-secs, T-bills, CDs and papers issued by government backed institutions. What this means for you, is that the concentration risk has been reduced to a great extent by the regulator without you having to bother about the same.

Portfolio Composition: Other things being equal, the only way for a fund manager to enhance returns in Fixed Income is either through interest rate risk or credit risk. Since the former cannot bear any weight in Liquid funds which run zero to low mark to market component (securities have to be valued at their traded value /fair value for maturity beyond 60 days) the later can do have some bearing on returns.  In the Long run we are all dead, and in the short term everything in debt markets is A1+ rated (This was a Joke). The trick is to pay attention to the credibility of the issuers. I am a bit cynical about the rating world but at least it is a good starter. It provides the much necessary illusion of comfort. So essentially, it will be good to pay attention to the long term ratings of even the short term issuers. It is best to stick to quality portfolios.

Securities Breakup: It will be wise to know the portfolio breakup in terms of the type of securities. The ratio of CBLOs, Repo, Commercial papers, T Bills, Certificate of deposits, Bonds with residual maturity of less than 91 days, FDs (yes they do invest a small part there too). This breakup will essentially tell you how liquid are the Liquid funds in truest sense. 

AMC: The pedigree, the long term track record of the AMC, the ability to show resilience in the down cycles, the management of credit events whenever they took place; these are qualitative factors and require attention. But these soft factors are important when you do not have much time to analyze & wish to entrust your hard earned savings to someone.

Cost: Last but the most important metric. The total expense ratio charged by the funds is essential to know. The lower the better, the lowest may not be the best.  As I just gave you the other reasons to pay attention to.

What not to pay attention to?

I may have my own prejudices here, but I am not a big fan of the following:

• Independent websites research ratings. Some of the funds which went kaput post the default crisis in Amtek Auto had the best ratings

• Top Rankers - They changes every few days, weeks. Over a period of time, the returns across schemes revert to the mean and net result is insignificant. In fact a prudent risk mitigating norm would be to question a fund manager if he consistently stays in the top quartile for a longer period of time as to what is he doing differently to achieve such a result?

• Sharpe Ratio: Return per unit of risk generated may be immaterial here. As the more thinly traded securities in a portfolio, more illiquid it will seem and thus less volatile. A portfolio consisting of T Bills will thus have a lower Sharpe ratio compared to a portfolio of commercial papers. But that does not really tell you anything but adds the much revered complexity.

And well, you have Liquid ETFs too. They may not be the most optimal, but to a certain set of investors, read stock market traders, it indeed is the most convenient way of investing. Convenience trumps returns many a times. This beautiful quote sums it up “Not every dollar of ours is meant to build wealth.  "Every dollar needs a purpose, but that purpose will differ depending on our current goals.” – J Money.

So the next time, you have to invest in a Liquid Fund or ETF, ponder on the points mentioned herein and choose to use your energy and intelligence for more complicated investment decisions. Keep this simple!

Disclaimer: I work with DSP BlackRock Asset Management. My views will have a strong dose of availability and outcome bias. The views and opinions are my own and obviously not of my organization.

Grow up into a Better Human to be a Better Investor

Off late my son has been asking me just one question “Did you write something new for your blog?” And answering this question incrementally with a ‘NO’ was getting unbearable. This pressure felt worse than any sales target I would have ever undertaken. I asked him in jest that what topic should I write on and he says ‘Demonetisation’. It took a while for the thought to sink in. And serendipity happened;  Modiji! Hamaara Desh sach mein aage badh raha hai!!!  What can be better than a Punjabi son having a discourse with his Mom not about Aloo ka paranthas or Rajmaa Chawal but Demonetisation.

So I decided to write a note to my son, on the ‘Donts’. Things which we tell him but which perplex him. Things which we hope will make him a Better Human. Before you decide to log off thinking, O No! There she goes with her sermons; damn I get enough of them from my Mom, Dad, Spouse, Boss and my Dog….. WAIT!!

Serendipity also happened when I realized that how similar it is, the principles on which you can govern your Life & Investing style. Yes, fundamentally analogous it is to be a Better Human and a Better Investor. Did you notice that I am using the words “Better Human” instead of “Being Human?” I can’t infringe on one Mr. Khan’s copyrights also I have no driver to bail me out in case I get into some road accident.

NOTE TO A SON FROM HIS MOM    :     DO THESE ‘DONTS’

Son, do not get bogged down by what your friends do or don’t. Do not let yourself be defined by others. Try to build your own thoughts, independent of what your friends think. Do not seek affirmations and confirmations from all and sundry. A handful of well-wishers are enough. Trying to please everyone will be suicidal for your personal growth.

Likewise; In Investing, do not buy or sell based on what your friends, neighbor or that fancy stock guru is buying. You do not know their realities. You do not know their risk appetite, information ratio, maneuverability, asset allocation, incentives involved in doing so. Actually you know nothing about those whom you wish to imitate. Robert Cialdini has described this behaviour as ‘social proof’. It is the tendency to see an action as more appropriate when others are doing it. Remember, it may not always be the best for you.   

Son, do not be in a hurry to grow up. You are always asking me when will you get independent, when will you make money, when will you be involved in the discussions which we adult partake while asking you and your brother to go to the other room?  Some things take time. Growing up is a process. Enjoy it every day. Your science book explains how a seed turns into a sapling, then into a shrub and later into a tree. Some seeds do wither away, not all will turn into a tree and bear flowers and fruits.  We nurture you, support you, love you and at times admonish you; know that this is all a part of growing up.  You do not realize but at every stage you have your own set of responsibilities, independence and authority. If you keep comparing yourself with us grownups, it will only add to your misery.

Likewise; In Investing do not be in a hurry to see your investments grow. Investing is a process, a journey towards your financial well-being. It is not a journey towards building an X amount of retirement corpus but a journey to achieve financial independence. The sooner you achieve the better it is. Not all your investments will pay off. Some may wither away; some will grow exponentially to bear fruits of your patience and discipline. But it is all well if it ends well. Worrying over every investment and why it went right or wrong will only add to your misery.

Son, do not wile away this precious time. All play and no work also got Jack nowhere. Remember, the ant and the grasshopper story? Where the ant works tirelessly through the summer while all the grasshopper does is play, sing and dance only to learn the value of hard work when winters arrive. I would like you to twist the story a little. Be the ant many a times but do become the grass hopper too sometimes. The fine balance is a difficult one to achieve, but then who ever said that Life was easy? Also, take care of your belongings. Don’t be careless.

Likewise; In Investing average investors can only earn a finite amount on their investments. There is no substitute to grow your wealth but by saving more. Do yourself a favour, watch two shitty movies less in a month, skip an expensive meal at a fancy place at times and put that money to good use. Take care of your money, because if you don’t, no one else will. A famous artist Rihanna filed a suit against his manager for swindling away her cash and he had this to say about her “Was it really necessary to tell her that if you spend money for things you will end up with things, and not the money?” Pretty much sums up all you need to know. Things don’t makes us happy, experiences do. The trick is not to get off the Hedonic Treadmill at once, but keep reducing the speed and finally someday you may not feel the need to be on it at all.

 

Son, do not get too attached and emotional about your friends, mates, belongings. It only hurts. This is sheer experience talking. People around you who you think are your ‘friends’ will change. Situations will metamorphosize.  Let go. Destroy your most cherished ideas by confronting them. Be honest with yourself in the least if not with anyone else.

Likewise; In Investing do not fall in love with any of your investments. Investing environment will change. Views will change. Stocks, sectors, asset classes which made fabulous returns in the past may not do so in the future. Confront your realities. I know a friend who has made tremendous net worth on Real Estate in the past 15 years, is still in denial. He still thinks it is the best place to make money. May be he is right, but if only he was willing to be a little more open to other investment ideas, he would not be currently stuck with illiquid properties. We know enough stories about how we expect some dud stocks to turnaround but some stocks will never go back to their glorified prices even when the index achieves newer heights every day.  

Son, do not show dis respect or disgust towards anyone. This includes not just us your parents or grand-parents. It includes your teachers, your extended family, the maids, drivers or random people in the park. I know this is idealistic but at least try.  This beautiful aphorism by a Jesuit priest Baltasar Gracian “The wise are the least tolerant, for learning has diminished their patience” is true. But at this raw age you are far from being wise, so learn tolerance.

Likewise; In Investing respect the opinion of others around you. Learning can come in from any corner, from that new intern in your office, your pantry boy or from your fiercest competitor. Above all, respect MARKETS. The day you are too sure of the directions which the markets will take is also the day you can celebrate as your Fools Day. And try to reduce the velocity of this celebration. The best investors are also the most humble ones. So short Hubris and long Humility. 

Son, do not confuse Success with More Medals or Money.  But, Success equals to Happiness. It is perfectly ok to come second in the race, as long as you know you tried your best and are able to work harder the next time instead of saying that you can’t do it. It is ok to have stage fear while you are up there reciting a William Shakespeare poem as long as you stand upright and are ready to recite one more, the next time too.

Likewise; In Investing do not confuse success with a higher CAGR on your portfolio or with your ability to identify more and more multi baggers in the stock market. To grow in life, one needs to push themselves to get out of their comfort zone but in investing, it is imperative to operate within it. A good night sleep is the best return on your investments. Never compromise on it while maintaining your discipline in the markets.

And lastly, this is something you need to DO. Develop a hobby. It could be a sport interest, an art or a craft. It can act as a great stress buster especially when you grow up and are absorbed by worldly pressures or pleasures. Going back to your hobby is like going back to the one you love. You may ignore it, exploit it, use it, abuse it but it STAYS with you and calms your riled nerves when you need it the most. Your hobby truly loves you back in return. So have one. 

Some think Investing is a Science, some think it is an Art but I have always thought that Investing is a CRAFT. Investing is a craft as it can be improved with practice. The finer nuances of investing may be known to many but followed only by some. Investing will test you, your emotions, your strategies; your best laid plans and ideas. It is only how you hone this craft and improve it every day will set you apart

Kachhe Din were not so Achhe Din

To all those perplexed with the title, kachhe means underpants in Hindi. And with Kachhe Din I actually mean ones childhood days.  Yes! I am indeed saying that adulthood is better in many ways than childhood. Caveat: My definition of adulthood is when you are making your own money, you are well settled with spouse and kids and you have a positive tick to most milestones to be achieved at your age. I am not counting old age here, as that is past adulthood. That age is dull hood.

We all know the famous Jagjit Singh ghazal where he sang:

 “Yeh daulat bhi lelo, yeh shauhrat bhi lelo, bhale chheen lo mujhse meri jawaani, magar mujhko lautado bachpan ka sawaan, wo kagaaz ki kashti, wo baarish ka paani”

Fine! he may take the kashti, I shall still take the paani. I mean fermented water( read alcohol). See the first perk of growing up!!!

But on a serious note, I say this out of my own experience of growing up and by observation around us. Let us break some myths of why it was not so much fun being a kid.

Myth no 1: No Responsibility

Everyone loves to say that. Oh Come-on! The child from a very young age grows on the pile of expectations of their elders. Do this, do that, don’t do this, don’t do that. The values, culture, traditions, rules and a myriad of more such mono syllabic instructions all of which are a child’s “responsibility” to follow. So many struggles; such a tiny and fickle mind. My son today on being instructed to do something retorts back by saying “India got independence from the British in 1947, but I am still a slave, India is free, but I am not independent” Yes, I foresee him becoming a dialogue writer when he grows up.

I am better off now growing up and having the limited (yes I think they are limited) responsibilities of making moolah and tending to the family.  Hell !!! All you need to be able to do is afford some maids, find out some engagement activities for the kids, plan holidays, dinners, keep your spouse interested in the marriage and so on so forth. And most of the things mentioned can be taken care off by just one thing ‘money’. So the sole responsibility only appears is to make more money. Now Go Figure.

Myth no 2: School Days were so good

What was so good about studying so many subjects and so many topics? Carrying such heavy bags? I am yet to understand why and how finding out the empty space in a cube of 22 cm diameter, apparently filled with spherical marbles of 0.5 cm occupying 1/8 space in it, could have helped me in my life? Or why studying, dissecting different body parts of a cockroach be it the thorax, abdomen, alimentary canal or some intestine would help me. I am still after all these years, afraid of them. Clearly, cutting them on the dissection table hasn’t helped. Or why was it earth shatteringly important to remember history dates? How did it help me in my life knowing when Tipu Sultan died, married or had a baby?? I would be better off studying how to manage life, how to build and develop healthy relationships, how to manage finances, how to be emotionally strong, none of which are covered in any of the book curriculums.

I am better off now as an adult reading books I want to, browse as much internet as possible without having parents coaxing and chiding us to stop. Also for most men, being a couch potato in front of the TV after a hectic day at work looks as well-deserved as tiny Pappu earning a lollypop every time he has allowed Mommy dear some peaceful shopping at the mall.

Myth no.3: We had so many friends

No dear!! What you had as a child was an illusion. An illusion, that everyone who we spoke to and played with was our friend. Real friends were always far and few. You must thank adulthood which does the reality check. I remember being hurt many a times by the behaviour of my so called best friend. The whole world thought we were best of friends. Uff the pressure……to maintain the illusion. We carried on the pretence for very many years. It took half of my school life and my entire college life to break free of that misconception. Today, we are as good as two strangers and I know who my real friends are. And yes, I am lucky to have more than one real friend. And trust me even if you have one real friend, God has been kind.

Myth no 4: You enjoy Life as a Child

Think about it, as a toddler, you were struggling to walk. On watching your older peers, you then wished to run. When you were in the primary school, you admired the grown up secondary kids and wanted to be like them. When in secondary, you craved for the glamour of college life. When in college, you were already dreaming of a corporate life; the time when you start minting money. But!!! Mind you!!! Now that you are working, making your own money, you DON’T WANT TO GROW OLD.

This ‘in your face’ fact is that none of us want to grow old.  Ahhh! that grey hair, well…. I am not talking about the salt pepper look which men like to keep with the idea of impressing the fairer sex. But seriously, how many want to grow old to welcome weaker knees, body aches, lose dentures and hundreds of other ailments which the dullhood brings along. Hence my limited conclusion is that, NOW is the time when you will actually enjoy life as you are not looking forward to go the next stage!!!

Yes you enjoyed troubling teacher in schools but do you know you still trouble your colleagues alas without realising. One thing I cannot deny though is the fun playing out in parks and grounds, something which this generation is anyways fast forgetting no thanks to the smart phones and gaming gadgets. I rather be an adult clued on to that gadget than being a small kid doing the same. That is more shameful.

Myth No 5: It was a carefree time

How was it carefree??? Of course we are not talking here about earning bread and butter, managing the household or work etc., but childhood had so much to care about. And also everything that a  child cares about is inadvertently and life savingly important at that age too. A child cares to buy so many things, but does not have the means to do so. They see their friends with fancy gadgets, cool toys and more often than not end up demanding things only to hear a big “NO”.  See how they care to have a good time too. I come from a North Indian household, where men in the family often sit together for a rendezvous over drinks, sometimes the women join in too. The look on my children’s faces at times is “Why on earth can’t I have that thing you are having?” One more reason they surely care to grow up. I remember growing up to so many wants which were repeatedly refused, restrained in the name of discipline and so many other middle class values; also some were simply beyond means. Wonder then if we really can term such a life carefree from a child’s perspective. Add to this the fact, that today’s kids are so bogged down with being the perfect child for their parents; where he/she should apart from school work, know how to swim, dance, play some instrument, learn shlokas, pursue some sport and blah. Where is the carefree time?

Cessation of my Observation

What we now reminiscence so fondly is not just the joy of childhood but we grow up to appreciate and be thankful for all the succumbed wishes, unfulfilled desires and superfluously painful memories of not having received all that we want. We now realise how it has helped us shape into better and well reasoning adults. Iron can only be casted into desired shapes when it is hot and molten; Clay can only be moulded when wet and muddled. Grown-ups can only thrive with the right kind of upbringing which needs a fair amount of rough exposure as a child.

There is an English idiom “Keeping up with the Joneses” which is so prevalent in the developed and the upper strata of the world. I see it fast catching up in the middle and lower echelons of our society too. It means comparison of one’s social and economic class with the others. I belong to a generation, where most of us and my friend’s parents were never under such severe pressure to ‘Keep up with the Joneses’. Now, increasingly though I notice that we, if not for ourselves, atleast want our kids to keep up with their Joneses. Don’t we desire the best for them?

But in doing so, somewhere we are giving them an extremely, protective, cushioned and shaded childhood. These children may actually grow up to realise that their childhood life was really better than adulthood. But that is not how it is meant to be. Childhood is meant to be rough and tough. IT BETTER BE TOUGH

Client’s Well Wisher OR Client’s Wealth Wisher

I had promised to do a post on how to find out the right advisor (the most challenging part) and here I am doing it at a lightning fast speed. I need more of such 4 day holidays. Please Stars! Do align accordingly more often. The previous post on Mutual Fund Distribution was about me being a free messiah. Here I decided to do some role reversal and act like the devil’s advocate.

Warning: Many in the distribution fraternity who liked my earlier post may find themselves befuddled with this one. The good news is, that was also true and this is also true. The bad news is, earlier truth was easy on the palate and this one is going to be tad difficult to digest.

The asset breakup of Indian Mutual Funds shows a very interesting trend as per broad categories:

Category	Equity Assets	Fixed Income Assets
Retail	42%	3%
HNI	42%	26%
Institutions	16%	71%

In a 13 lac crore industry, the retail investor stands at a meagre 15% at 2 lac crores. Retail investors hold 170000 crores of equity assets but only 24000 crores of fixed income assets of the mutual funds. These are rough estimates. There must be something egregiously erroneous in our approach from the very beginning as to why the numbers look so despondent. With us, I mean AMCs and Distributors. Since the beginning, when regulations were also not stringent, not much has anyways been done to reach out to the real retail investor. To put it plainly, no one has ever bothered about them.

More than 90% of financial savings of an average Indian household are in Fixed Income Instruments like Bank FDs, NSC Certificates, PPF, Kisan Vikas Patra, Post Office Saving Schemes, etc. His investment into direct equities has only come down. But, when it comes to mutual funds, it is evidently clear that an average retail investor has only been sold more and more of equities with great disregard to asset allocation or his personal needs and preferences. Though it is also true, that such investors should only hold equities through mutual funds for several reasons (please google). Clearly, if he later has a bad experience in the funds, it leads to an investor lost eternally for the industry to other assets like Gold, Real Estate, Bank FDs and blah.

The elusive retail investor is like a star which shines bright, they are in abundance and everyone wants to reach them, but they are too far (read scattered everywhere). Also, they are so tiny that it is not worth the effort to approach (read not remunerative). We rather focus on the easy money. And continue to serve the well served.

In the race to gather AUM and climb the ranking charts, few AMCs in collaboration with select few in the distribution fraternity are guilty of indulging into unhealthy practices. Why bother with a slow tortoise race when there are many a hares eager to run fast and reach the finishing point using shortcuts.  

The Collective Distorted Motto: 

Show the rich, the well informed and the well served investors; even better

ways  of getting rich and extra informed to serve them the best

Like they say a few rotten apples, spoil the barrel. Similarly, few participants (be it the distributors or the AMC) give the entire Mutual Fund Industry a bad name. This post is not supposed to be a rant, but in a commercial/luxurious trips/five star meets driven distribution network, even those distributors who try to do genuine good work by wanting to learn, enhance their skill set and get trained while simultaneously educating their clients, will go unnoticed and remain discredited.

It has always mesmerized me as to why; Not always but most of the times, a new skeptical investor into mutual funds is not introduced through the fixed income route? Why don’t we let him have a positive experience of positive returns through fixed income funds and later graduate him to equity funds?

Clearly relatively poor revenue in those funds is the culprit. So much for investor protection (or brokerage protection)!

The average working class Indian does not know much. I say this out of experience. Doesn’t know the products, doesn’t know the markets, has faint idea of his / her goals. Most don’t know the importance of saving right though we definitely know how to save. We Indians are expert at it.

So then how can a true blue retail investor be sure whether the trusted distributor he is dealing with has his welfare in his heart and not the brokerage warfare in his mind, when he himself is clueless many a times about his own financial goals?

Instead of telling investors what to look for, I think they should know what to watch out for as signals that you need to RUN. Run really far and wide from cronies who will portray the role of an advisor in the garb of pushing the maximum revenue products.  Also, the ones in this profession should do a serious reflection and contemplate whether they are guilty of the same and are they willing to alter their client approach in the future. As a client, RUN when you see these:

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•  He promises you that he can deliver a magical CAGR of 18% to 20% on all your investments year after year. If he does, he is serious competition to Warren Buffett.
•  He mindlessly loves NFOs / IPOs / New launches. All of them. These actually give him a professional orgasm and he loves to sell you at par value, saying how cheap it is.
•  He easily recommends funds without spending time with you, trying to understand your investment horizons, investment psyche, risk appetite and risk profile. 
• He has never bothered to know your insecurities, goals, long term plans, desires and aspirations. He is just interested in knowing how much money you can spare at the end of the month, what salary hike you received this year and how can you top up that SIP.  In short, what you have with this person is a transactional relationship, while what you need to have is a transformational relationship. Starkly different. 
• He never bothers encouraging you to save or discouraging you from needless spending. He never counsels you on EMIs, credit card spends, etc. 
• Meeting often?? Hell, Who does that as long as the investments roll in and the brokerages are trailing. 
• He recommends only Equity fund, Direct Stocks (typically multi baggers) or ‘safe high accrual’ funds in Debt.  
• Psychometric test for the client!!! Ehhhh….what is that??? I am a psycho and also a metric pass. 
• Action, action and more action. Re-balancing, churning, booking profits, booking losses is always recommended. It then becomes quite easy to justify his ‘value’ to the gullible retail investor. 
• Every investment recommended is the best investment advice of the year. Also it cannot be postponed. It cannot wait. It has to be done NOW. Else, you will be too late as the golden goose of an investment which has to lay golden eggs will run away to some other planet.
• Shows you excel sheets of great past performance. Trust me this is the easiest and the dumbest way to recommend. Continuously chasing five star rated funds only make third grade distributors and investors. 
• Always agrees with you whenever you wish to invest, especially in equities. He always thinks it is the right time. As no time is wrong time to make higher commissions, right?
• Tax planning, Insurance, a holistic financial plan is something he only dreams of for you.

     In short, what I just mentioned is what financial advisors / planners are made of. But, in my opinion the consumer in our country is not yet prepared to dish out fees for such financial planning and thus it is the inherent duty of a distributor to double up as a financial advisor.

    

     Word of mouth really helps in identifying a good advisor. Also, if the correct thing to do is to not do anything at the moment, a good advisor will tell you the same. He is supposed to address your worries, concerns, calm your nerves when you see volatile markets. Mom! He / She is your Financial Mom. What clients need is a Saarthi, the Krishna – a Mentor who can guide them towards attaining financial independence.

How many in the distribution community can live up to such expectations? It is going to be a survival of the fittest.