Celebrate World Investor week with us!!
Join K.S. Rao, Suresh Sadagopan, and Harish Rao for an Enlightening Session
#OutlookMoney #Investors #WorldInvestorWeek
Join K.S. Rao, Suresh Sadagopan, and Harish Rao for an Enlightening Session
#OutlookMoney #Investors #WorldInvestorWeek
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NewsTranscript
00:00 (upbeat music)
00:02 Welcome to this webinar series,
00:11 which is a part of the Investor Education
00:13 and Awareness Initiative
00:14 of Aditya Birla Sun Life Mutual Fund
00:17 in association with Outlook Money.
00:19 The World Investor Week is celebrated
00:22 between 2nd and 8th October,
00:24 and this year the theme is Investor Resilience,
00:27 Crypto Assets and Financial Sustainability.
00:30 So we thought we'll take this occasion
00:32 to understand the different aspects
00:34 that resilient investors should focus on
00:37 along with a panel of experts.
00:39 So we'll be talking about a lot of things
00:42 that investors should keep in mind,
00:44 and the topic of the discussion today
00:46 is World Investor Week, Exploring Investor Resilience.
00:51 I'm Nidhi Sinha, Editor, Outlook Money,
00:53 and let's start with welcoming the panelists.
00:56 First of all, we have with us Mr. K S Rao,
00:59 who's the Head of Investor Education
01:01 and Distribution Development at Aditya Birla Sun Life AMC.
01:05 Mr. Rao has been striving to take financial literacy
01:09 and investor education to various demographic segments
01:12 across geographies since more than a decade and a half now.
01:17 We also have with us Mr. Suresh Sardar Gopin,
01:19 a SEBI registered investment advisor
01:22 who recently also became an author
01:24 with the release of his book,
01:26 "If God Was Your Financial Planner."
01:28 You must read that.
01:30 Our third panelist today is Mr. Harish Rao,
01:33 who is a money management coach at Simple Equation
01:36 and has been working towards financial literacy again
01:39 and demystifying money management for the common man
01:42 for many years now.
01:44 So starting with the questions today,
01:46 I'll start with you, Mr. K S Rao.
01:49 Since this year, one of the themes of World Investor Week,
01:53 which we are discussing today is investor resilience.
01:56 Could you share why it is important
01:59 for investors to be resilient
02:02 and how this quality of investors
02:05 is relevant in today's financial landscape?
02:08 - Good morning, thanks Nidhi for being part
02:11 of this initiative for us,
02:13 making each of these initiatives unique.
02:16 And first of all, congratulations to you
02:18 for taking the other part of investor education
02:22 to your next level, especially on the retirement piece.
02:25 The outlook money is embarking on a biggest mission
02:27 and probably that could relate to today's topic
02:30 to on the investor resilience
02:32 and somebody who plans for their retirement right,
02:35 probably the most resilient investor for the life.
02:38 And thanks to be part of,
02:40 and I'm grateful to Sureshji and Harishji for being here
02:44 and great to be part of the panel.
02:46 Thanks once again.
02:47 And yeah, World Investor Week,
02:48 every year they come with one theme
02:51 and incidentally over the last three years,
02:53 they kept the one theme is common,
02:56 which is called investor resilience and they extended.
02:59 This year they spoke a little about crypto
03:00 and they also added last year sustainable finance.
03:04 And I remember in 2021 when we were doing,
03:07 2020 World Investor Week,
03:09 when the resilience topic has come,
03:10 that is the time of COVID.
03:12 We were doing multiple webinars,
03:15 which are called Need of the Hour,
03:17 that H-O-U-R, Hope, Optimism, Understanding and Resilience.
03:21 And that resilience was the one which is coming,
03:25 not during the tough times, during all the times.
03:27 Why investor need to be resilient?
03:30 It is like when we are investing our money,
03:33 we are subject to market volatility
03:35 and we are subject to economic uncertainties
03:38 and we are subject to changing environment,
03:40 changing the landscape, changing the macro and micro
03:43 and many changes will happen,
03:44 but we stay put, the investors stay put.
03:47 And sometimes you incur sudden losses,
03:49 sometimes you take a decision,
03:51 which is not conducive,
03:52 but you go by the biases of the short term.
03:56 And here comes the importance of the investor resilience.
04:00 It is investor resilience,
04:01 is not exactly about avoiding the loss,
04:03 but it is a bouncing back, stay put
04:05 and put for the long term investment.
04:07 And I think this time,
04:10 the World Investor Week also circulated a theme,
04:13 which is called a smart investor.
04:15 And the smart investor is the one
04:16 who is the resilient investor.
04:18 And it is very nicely spoke about
04:20 the impact of inflation
04:21 and the importance of the diversification.
04:25 And I think I remember in our Nibesh Mahakum,
04:28 we used to tell you need to,
04:30 in the normal Kummel,
04:31 as you go and take a dip with Nibesh Mahakum,
04:34 you understand the DIP,
04:36 that is the delayed gratification impact of inflation
04:38 and power of compound.
04:40 And here it exactly what World Investor Week spoke about
04:44 is impact of inflation and the acceleration.
04:47 How some of investor resilience,
04:50 what is that investor need to do?
04:51 How I can call myself a resilient investor?
04:53 The first thing is I'm not investing
04:56 according to the market conditions,
04:57 I'm investing according to my goals.
04:59 Means my goal setting is right,
05:00 my financial goals are right.
05:02 And second, once the goals are decided,
05:04 I'm diversifying my assets
05:05 and diversification is the key.
05:07 Of course, you need to do proper risk assessment
05:10 during the period of time and your risk tolerance.
05:13 And the one comes is the asset allocation,
05:15 which is the key.
05:16 And that is, then you need to invest
05:19 for as much long-term as possible
05:21 and you match your goal horizon with the investment horizon.
05:24 And here comes education and research
05:27 to equally important, your continuous education.
05:30 Probably you may not have much time to research,
05:32 there goes to the professional advice.
05:34 You need to have a professional advisor
05:35 to manage your finances.
05:37 And the last comes is the mutual funds
05:39 is the safest way to get that resilience can happen
05:42 because you don't need to worry.
05:44 There is a professional manager who decides
05:46 where to put, what to put,
05:47 and according to is the investment objective circulated.
05:51 If I match my goal objective
05:53 with the fund manager's investment objective,
05:54 investment objective, I am done with,
05:57 like I'm resilient investor, nothing to worry
06:00 and stay hooked for the long-term.
06:02 And with the professional guidance, it can happen.
06:04 I think this is where I look at investor resilience
06:06 is too important.
06:08 And we have seen many instances,
06:10 a way back from '92 to '88,
06:12 that there are, you can see markets coming back
06:14 for the either scam or something else.
06:17 But when you stay put,
06:18 that's where you get the power of compounding
06:21 and the benefit of the compound.
06:22 - Right, so like Mr. Rao put it,
06:25 it's very important to be resilient,
06:27 to be able to realize your goals.
06:30 But taking this theme forward of investor resilience,
06:33 my next question is to you, Mr. Sadagopan.
06:37 What is the role of financial or goal-based planning,
06:41 so to say, in making investors more aware
06:45 about how and why resilience is important
06:48 and making them more resilient in the process?
06:51 - See, almost all the people who come to us,
06:54 they have a lot of goals, dreams, aspirations.
06:57 And obviously, as a financial advisor,
06:59 my role is to ensure that in whatever timeframe
07:02 they want to achieve the goals,
07:04 I mean, all the goals that we have agreed upon,
07:07 those goals we should achieve in those timeframes.
07:11 But the point is, I mean, life is never,
07:14 I mean, a smooth rise like that.
07:18 So life is also like our pulse,
07:21 I mean, it goes up and down.
07:22 And I mean, recently we saw the effect of COVID
07:25 and what happened in COVID,
07:26 and a lot of people actually got affected by COVID.
07:29 COVID is probably once in a generation
07:31 or once in a century kind of an event probably.
07:35 But at the same time, there are going to be
07:37 other multiple shocks which are going to be there.
07:39 A lot of people who come to us,
07:41 they tend to discount that particular aspect.
07:44 And they are really, really focused
07:46 only on achieving their goals.
07:49 So as a financial advisor, I mean, it is my job
07:51 to have, say, appropriate security nets in place
07:56 to take care of these kinds of calamitous events.
07:59 And so that the investors can sail through
08:02 even if there is a shock.
08:04 So at least they should be resilient.
08:06 I mean, Nicholas Nassim Paleb
08:09 had written a book called "Antifragile."
08:11 One is, I mean, some of the people,
08:12 when there is a shock,
08:13 they actually completely break down like a piece of glass,
08:16 and that is fragile.
08:18 And what we are currently talking about is the resilience.
08:20 I mean, if there is a shock,
08:22 yeah, you're going to be affected by it,
08:23 but at least you should be able to bounce back.
08:26 And that is essentially what we would want to work.
08:29 Antifragile is, I mean, even if there is a shock,
08:32 then you are able to overcome it,
08:35 and you are better for that.
08:36 I mean, you are in a much better place
08:38 as compared to what you were.
08:40 So let us not really talk about that at this point,
08:42 because we are talking about resilience.
08:45 So one of the things which we do
08:46 while we do a financial plan
08:47 is to first and foremost have a liquidity margin.
08:51 So why do we have a liquidity margin?
08:53 It is because, see, there is a possibility
08:55 that income, which is expected to come at a particular time,
08:59 which we are dependent upon for expenses,
09:01 for spending or investments,
09:04 if it gets delayed,
09:05 we should have enough money by the side
09:08 so that we'll be able to take care without any problem.
09:10 So that is a basic liquidity concept.
09:12 And typically as financial advisors,
09:14 that general amount of liquidity that we maintain
09:16 is at least three months of expenses,
09:18 including all the loan EMI payments.
09:22 Apart from that, we also may have to put aside
09:25 some money for emergencies and contingencies.
09:27 Contingencies are things which probably
09:32 we may not be able to truly really anticipate.
09:34 One of the contingencies is like what we saw,
09:36 the COVID.
09:39 And emergency is also something very similar.
09:42 Emergency and contingency are very similar.
09:44 Like for example, there can be a senior person in the family
09:49 who may require medical attention from time to time,
09:51 or there may be a family member
09:52 who is probably into maybe some business
09:55 or maybe financially not really that well off,
09:58 and we may have to support.
09:59 So the timing is not known,
10:01 but it is also reasonably known that, okay,
10:03 we may have to support them from time to time.
10:06 So in those kinds of situations, if it is known,
10:08 according to the particular family situation,
10:12 and according to their estimate of what kind of support
10:14 they may have to extend,
10:16 we really keep aside a certain amount of money
10:19 in terms of emergency and contingency provision.
10:22 So only when we do this kind of a thing
10:25 and we provide the security net,
10:27 will we be able to actually move ahead
10:29 and achieve whatever goals that they have already told us
10:32 and we have agreed upon,
10:34 and we will be able to achieve that
10:36 without any major problem.
10:38 So resilience is absolutely important.
10:40 I mean, the other resilience, of course,
10:42 is taking appropriate insurances.
10:45 So wherever possible,
10:48 wherever risk transfer is possible at a reasonable cost,
10:51 I think that is exactly what we should do,
10:53 and insurance is actually all about that.
10:56 So we need to take appropriate medical insurance,
11:00 appropriate life insurances.
11:02 I mean, as per the calculations.
11:04 And then other insurances like critical illness
11:06 or accidental insurance, home insurance,
11:08 these things on a case-by-case basis,
11:10 need basis, we need to do that.
11:12 It is part of the overall resilience building
11:15 for the client, I would say.
11:17 - Right, in fact, one of the good things
11:19 that COVID did in its wake is made
11:23 at least some more people aware
11:25 about the importance of insurance, if nothing else.
11:28 So of course, moving on,
11:32 the World Investor Week that we are talking about,
11:34 another theme is sustainable finances,
11:36 which brings together the concepts
11:38 of environmental, social, and governance, ESG,
11:42 and their relevancy to investment decisions
11:45 is what we would be interested in.
11:47 So Mr. Harish Rao, could you explain
11:50 why sustainability has become a crucial aspect
11:54 of the investment landscape recently,
11:56 and how can investors align this whole concept
12:00 with their value system in terms of investing?
12:03 - Good, good question, Nidhi,
12:04 and a warm welcome to my panelists,
12:07 co-panelists also, K.S. Raoji and Sureshji.
12:10 Sustainability is largely, at this point in time,
12:14 a very Western notion,
12:17 but I think it's got its egos in India as well.
12:21 India being a country with 1.4 billion people,
12:24 we need to find ways to sustain our resources,
12:27 maintain our environment,
12:29 and ensure that our governance also keeps improving.
12:33 Like you said, it is ESG,
12:35 environmental, social, and governance.
12:37 So it's basically a screen or filter
12:40 for used by socially conscious investors,
12:44 in which stocks are screened
12:46 on the basis of these three scores.
12:49 It's also called a socially sustainable investing,
12:52 impact investing, socially responsible investing.
12:55 All of them are synonyms of ESG investing.
12:58 So why am I saying it's a very global trend
13:01 is because there are certain global or Western imperatives
13:04 that are getting imprinted on this.
13:07 One is climate change.
13:08 The environment part of it is climate change.
13:11 There are climate change goals
13:13 that countries and companies have to adhere by.
13:18 Then you have compliance to government
13:21 or environment regulations, pollution standards, et cetera.
13:27 Then you also look at carbon footprint.
13:29 So these are broadly the environmental parts of it.
13:33 The social part of it, again, is a very Western concept
13:36 because there's been a huge social churn overseas.
13:39 You have diversity and inclusion standards,
13:43 boards, reviews in companies in the US and in the West.
13:48 And then you also have to take care of
13:50 an internal and external stakeholders.
13:52 The communities that you live in,
13:54 you need to have standards in which you don't exploit,
13:58 say, for example, in India,
14:01 you don't exploit native landholders or tribals, et cetera.
14:05 And you need to focus on corporate ethics.
14:09 So these are the social part of it.
14:12 Now the governance part of it really impacts
14:14 the financial performance of a company.
14:17 So the markers for governance would be
14:20 the accounting standards and the clean balance sheets
14:23 and the reporting systems you have,
14:25 the choice of board members,
14:27 especially your independent board members,
14:30 how correctly active they are in the board,
14:34 and also the treatment of minority shareholders.
14:37 Everything from internal transfer pricing,
14:40 royalty repatriation, everything,
14:42 or share buyback, everything reflects
14:45 or impacts on minority shareholders.
14:46 So you have giant ESG arbiters now.
14:52 So everyone from a Bloomberg to an S&P, Dow Jones,
14:57 all of them have got ESG scorecards.
15:00 So mutual fund managers, asset managers
15:03 can buy into these scorecards
15:04 and construct their own ESG portfolios.
15:08 So definitely, Nidhi, it's going to become
15:11 more and more important going forward,
15:13 because like you said,
15:14 sustainability is very, very important.
15:17 There are very limited resources,
15:19 and the world and investors are becoming
15:22 more activist and demanding
15:24 more from the corporates they invested.
15:26 - Okay, thank you for that very comprehensive answer,
15:30 and our readers will have a lot of takeaways from that.
15:33 But coming back to investor behavior
15:36 and how they behave, especially in the equity market,
15:41 when we are talking about resilience,
15:43 the discussion of equity market can't be left far behind,
15:47 because that is one of the areas where
15:50 these things get affected sometimes.
15:53 So Mr. KS Rao, could you elaborate
15:55 what should investors keep in mind
16:01 when investing in equities?
16:03 And should they keep changing strategies
16:07 as the market conditions keep changing?
16:09 - Nidhi, that is a wonderful question.
16:11 I'm very right.
16:13 When we look at resilience,
16:14 sometimes we look at what is the safety,
16:16 as a class where I can put my money and forget,
16:19 so that I am more safer.
16:21 Sometimes we don't want to take any risk,
16:24 and somebody rightly put it is,
16:26 no, you're taking the biggest risk by not taking the risk.
16:29 And equity is such an asset class,
16:31 which you can't ignore.
16:32 You want to be a resilient investor for the lifetime.
16:35 And whether you want to change the stance time and again,
16:37 depending on the market, probably not.
16:39 And there are great financial advisors like Suresh G,
16:42 I mean, who can guide people.
16:44 And I also have gone through some of the data
16:47 at the backend, the equity investors,
16:49 who stay put and who got their two power-up
16:52 compounding as well.
16:53 Either the one class of investors,
16:55 either they've invested and forgotten
16:57 that they've invested.
16:58 And second class of investors are predominantly
17:01 are hand-holded by one of the good financial advisors.
17:04 I mean, who manage their emotions
17:07 during those turbulent period.
17:08 Nothing to worry, and there is something else is there.
17:11 Earlier, Suresh G was talking about,
17:12 you keep something, it's an emergency fund.
17:15 And you don't need to worry
17:16 why you need to liquidate your assets.
17:18 And there are, when they review once in a year,
17:20 then which asset class they need to look at.
17:22 And they take that call, the advisor takes that call,
17:25 then you can look at it.
17:27 But equity as an asset class, you can't ignore.
17:29 And though equity as now, I mean, post-pandemic,
17:32 there is a good traction which has happened,
17:35 either in the mutual funds, through the SIP route,
17:37 or some extent direct equity.
17:39 Of course, direct equity, I have seen the numbers.
17:41 This year, it has started coming down.
17:43 You know, it's 21, 22 was up wide, and 22, 23.
17:47 And if you can look at currently,
17:48 and it is on the downward trend.
17:50 And then, the second part I was just looking at,
17:53 after doing all these things,
17:55 I mean, I was talking to one of the CEOs
17:57 of one of the registrar companies the other day.
17:59 We were just analyzing the back-end data,
18:01 what exactly is the looking at.
18:03 And even today, I look at only 2.6 floors
18:06 of active whole use in the equity mutual funds.
18:09 Means, you know, all that what we have done
18:10 is just miniscule and not to be done.
18:12 And second part, another data suggests,
18:15 50% of the Indian households still preferring the property
18:19 as an investment base, not as an equity.
18:21 However, equity has outperformed substantially.
18:24 If I can look at 20 years Nifty CAGR, which is 15%,
18:29 and 20 years inflation is 6.5%,
18:33 and imagine the outperformance as equity as an asset class.
18:36 Means, you know, if you want to be a resilient investor,
18:39 you can't be resilient without taking equity.
18:42 Even for the retirees, I mean, you know,
18:44 I don't need money tomorrow morning, everything.
18:46 I mean, I'll be living longer if somebody is retiring at 60,
18:49 maybe 25, 30 years, and your concept of 40 after 40.
18:53 I mean, somebody is staying for next 40,
18:56 you know, they need to put that money to the equities.
18:59 And then what are the strategies they can adapt?
19:01 The simple strategy is invest for the long-term.
19:05 And when you are invest for the long-term,
19:06 don't take a short-term calls.
19:08 Just you need to get away from it.
19:10 You know, there is a meme which was going on,
19:12 what is a long-term means,
19:13 like, you know, if I buy a train ticket,
19:16 boarding at Kanyakumari,
19:17 and if I need to get down at Srinagar,
19:21 and that's like, you know, my long journey.
19:24 But if you want to look that as a short-term,
19:27 every station you get down and take your ticket buying,
19:29 then you will never accomplish what you want to accomplish.
19:31 You know, you need to stay put there.
19:33 Then diversifying your portfolio
19:35 is always giving that benefit.
19:36 And thanks to the mutual fund industry today,
19:38 either you have a multi-asset funds
19:39 or you have a balanced advantage fund,
19:41 where it is taking some kind of,
19:43 you are getting an equity exposure,
19:44 at the same time, you are not getting the full shocks
19:46 in case something happens to you.
19:48 And little bit of research and education is must.
19:51 Probably, you know, the kind,
19:52 the Outlook Money magazine, the way it does, you know,
19:55 even if you are reading, don't read anything,
19:57 even Outlook Money you read,
19:58 then you are comfortable to get some basic research
20:00 and you are there.
20:01 And have a disciplined approach.
20:03 A disciplined approach is, again, SIP as a theme.
20:06 I mean, you know, it has really created a momentum.
20:09 And I keep meeting, I'm so happy.
20:11 Sometimes I feel take pride, though I don't need to.
20:15 And some investor invested in SIP made tons of money.
20:17 And this is a guy whom I met,
20:20 it's just a week back in one of the forums.
20:22 And he's SIP money,
20:24 somewhere in one of the equity funds with the 25 years,
20:27 a little of 5,000.
20:28 And he suddenly has seen few crores of rupees.
20:31 And he says, you know, mutual fund SIP
20:32 is the reason for my growth.
20:34 I mean, this is where the disciplined approach.
20:36 Knowingly, unknowingly, you need to bring that discipline.
20:39 And fundamental, I always say the underline is,
20:42 go for a professional advisor, have a professional advice,
20:45 because that helps a lot,
20:46 because none of us are sure
20:48 what is going to happen tomorrow morning.
20:50 And professional advisors can make that.
20:52 And professional fund management will also help you on that.
20:55 And these are the few things, not as a strategy,
20:58 but as a basics we need to,
20:59 this is a hygiene factors I can look at.
21:01 And last is the power of compounding.
21:03 For example, even for the India's GDP I look at,
21:06 I mean, you know, first trillion of the GDP
21:08 has come 67 years after independence.
21:10 And second trillion has come after eight years,
21:12 and third trillion has come after five years.
21:14 Means the power of compounding,
21:16 that you stay put your money,
21:17 and the way India's GDP is growing, your money will grow.
21:20 And don't neglect asset class as equity.
21:22 And equity should be part of your asset class
21:24 where you are participating,
21:25 where you become more resilient in this.
21:27 - Right, so hygiene and diversification
21:30 is among the things that Mr. Rao talked about.
21:33 And Mr. Sadagopan, coming to you, diversification,
21:37 we talk about diversification,
21:39 the whole, you know, relation between risk and return.
21:43 Are the concepts that investors should perhaps,
21:46 you know, pay heed to.
21:48 So could you elaborate these concepts for our viewers
21:51 to explain it to them, how it works?
21:53 And it would be great if you could use some examples
21:56 from your recent book.
21:58 - See, when we put together a portfolio,
22:00 we need to understand what are the requirements
22:03 for that particular client.
22:05 So when in the future the various goals are coming.
22:09 So if some goal is coming after six months or one year,
22:12 we need to keep a provision for that
22:14 in an appropriate instrument.
22:15 The appropriate can be, for example, an ultra short fund,
22:19 or maybe an arbitrage fund,
22:21 or it can be a short term FD,
22:23 or it can be in the bank account.
22:24 If it is only three months, six months,
22:25 it can even be in the bank account.
22:28 But if the same thing is required,
22:30 for example, for retirement,
22:32 which may be say 25 years from now,
22:34 potentially we can look at a longer term instrument,
22:38 which can, which may be volatile,
22:41 but over a period of time,
22:43 it has the potential to compound and give the best returns.
22:46 So we really need to, all these things are,
22:50 I mean, entwined into one another,
22:52 like asset allocation, diversification,
22:55 and risk and reward.
22:57 All these things are intertwined concepts.
23:00 So, I mean, each one of the asset classes
23:02 has a particular characteristic.
23:06 Some of them may be very, very stable
23:08 in terms of their return outlook,
23:11 but, and it may be very low in terms of risk,
23:13 but the return per se may be, potential may be very low.
23:17 An example for that is the obvious bank FD.
23:21 Okay, so, I mean, it's a very,
23:23 very useful asset class for a lot of people,
23:26 but I mean, it cannot potentially,
23:28 I mean, beat the inflation.
23:30 So it has its own limitations.
23:32 But from the point of view of a person
23:34 who is really risk averse,
23:36 I mean, we may be forced to invest a large portion
23:40 of their overall corpus into these kinds of instruments.
23:45 But diversification of the asset classes
23:48 is very, very important.
23:50 And that is going to be case by case.
23:52 Like, and that is going to be not only in terms
23:55 of the risk profile of the person,
23:58 how much of risk they are willing to take
24:00 with respect to their investment.
24:02 It is also a factor of,
24:03 like I just mentioned sometime back,
24:05 when do they require the money in the future
24:09 for meeting their various goals?
24:10 So when do you want to unlock that?
24:11 So the tenure is also very important.
24:14 The tenure is very important because the longer the tenure,
24:16 the better will be the potential return
24:19 in that investment instrument.
24:21 So it is very, very important for somebody
24:24 to have the appropriate asset allocation in their portfolio.
24:27 Mr. Rao was just sometime back talking about
24:31 a lot of people actually investing in property.
24:34 See, property is absolutely fine
24:35 if you really have a long-term outlook
24:38 because property essentially is an asset class
24:41 which is not really very liquid.
24:44 So if you really have a very long-term outlook,
24:46 if you have already done your investments
24:50 in other asset classes,
24:51 which are comparatively more liquid,
24:53 then property as an asset class is something
24:55 that we can invest in.
24:57 So the appropriate asset allocation
24:59 is the most important thing.
25:01 How much you want to put in equity,
25:03 how much in debt, how much in property,
25:05 how much in gold, and how much in other kind of assets.
25:08 So that, there is no particular one magic formula
25:12 to say that, okay, this is the proper asset allocation.
25:15 It is going to change from family to family
25:18 based on their situation.
25:20 And the diversification is not only
25:22 in terms of the asset class,
25:24 even in terms of the underlying subcategories also,
25:27 we will have to get it right.
25:29 For example, we were talking about equity as an asset class.
25:32 See, the way one will be investing in large cap
25:36 and the amount of risk that we will be taking
25:38 will be quite different from, let us say,
25:40 micro cap or a small cap or international equity,
25:44 or for that matter, venture capital,
25:45 which is also coming under
25:47 the overall equity-oriented investment.
25:50 So we will need to diversify among the asset classes.
25:54 We will have to look at the subcategories
25:56 where we are investing in,
25:58 and then we'll have to see as we go along
26:02 what we need to do in terms of the recalibration
26:06 of the overall asset allocation.
26:08 One last point, there have been studies internationally
26:12 which say that asset allocation is the most important thing,
26:16 which actually gives you the return,
26:18 not really the particular scheme.
26:20 So if you happen to invest in, let us say,
26:22 equity in a particular proportion
26:24 and inside equity in certain large cap
26:26 or mid cap or whatever,
26:28 and if you have got that right,
26:29 most of your returns are going to come
26:31 from that particular thing.
26:34 So it's very important to have the proper diversification
26:38 among the various assets
26:39 and getting the asset allocation right,
26:41 and putting the asset allocation
26:43 as per your risk profile and as per your goals.
26:45 So that is what is going to really
26:47 help somebody to achieve their goals.
26:50 So broadly, that is what I want to say.
26:53 - Right.
26:53 So very well explained the concept of asset allocation.
26:57 And while discussing this,
27:00 Mr. Sadagopan also mentioned that some of the debt instruments
27:05 such as fixed deposits
27:06 may not give inflation-beating returns.
27:09 So Mr. Harish Rao, coming to you,
27:10 if there is a segment of people
27:13 who look for guaranteed returns,
27:15 and that is in fact one of the selling points
27:17 for a lot of instruments,
27:19 like even government schemes
27:21 or maybe some insurance policies,
27:24 they give these guaranteed returns, which attracts people.
27:27 But do you think that's the only thing
27:29 that one should consider,
27:31 or should there be other factors
27:33 that should be taken in consideration
27:36 before going for such debt products?
27:39 What is the rationale behind going for a debt product?
27:42 And what should one be wary of in terms of returns?
27:45 - Guaranteed returns are a magnet
27:48 for the normal retail investor
27:50 who doesn't like a guarantee.
27:52 - Right.
27:53 - So, but if you,
27:54 I'm not saying you should not have investments
27:57 and guaranteed products.
27:58 Many of the guaranteed products definitely merit
28:01 a place in an investor's portfolio.
28:04 You can hardly find a fault
28:06 with something like a public provident fund.
28:08 You can't beat the returns
28:11 or the structure of a Sukanya Samriddhi scheme.
28:14 Why a normal bank deposit,
28:15 many of my own relatives like it a lot
28:19 because they say it gives them,
28:20 you know, measure of comfort, familiarity.
28:23 So yes, guaranteed products are important
28:26 and they fill a very, very important customer niche
28:30 and customers should invest or can invest in them.
28:33 But like you said,
28:34 it should only be a part of the overall portfolio.
28:38 Both Rao sir and Suresh ji both had given,
28:41 you know, long-term data points
28:42 on the tremendous wealth creation abilities of equities.
28:47 Now the problem with guaranteed return products is,
28:50 you know, they present four different types of risks.
28:55 The most important or the overall risk is,
28:57 you know, capital return
28:59 or you know, the guarantee being met, okay?
29:04 Now let's assume that you are investing in a sovereign bond
29:08 or, you know, in a highly solvent investment.
29:11 So then that risk won't be there.
29:13 You won't have the risk of, you know,
29:15 missing out, you know, interest payment
29:16 or getting the capital back.
29:18 But then apart from that,
29:20 there are three other risks in a guaranteed return product.
29:23 So usually the good guaranteed return products
29:27 are very, very long-term.
29:29 Just think about Sukanya Samriddhi scheme
29:31 or say a public provident fund or your EPF, okay?
29:36 These are really, really long-term.
29:38 So the first risk you have with them is liquidity risk.
29:42 You, what is liquidity?
29:43 You know, ability to withdraw cash or get cash,
29:46 you know, at the time of your choice.
29:48 So you won't have liquidity in many of this.
29:51 So that presents one risk.
29:53 Either you have to take a massive haircut to, you know,
29:55 when you redeem these investments prematurely
29:59 or you have to liquidate some other attractive
30:02 alternate investments to fund your liquidity.
30:04 So there is a liquidity risk in these sort of instruments.
30:07 Second is your purchasing power risk.
30:09 In fact, both of my co-panelists have talked
30:12 about the effect of inflation.
30:14 What is purchasing power risk?
30:15 Your purchasing power goes down when inflation goes up.
30:19 So suppose you have an insurance scheme
30:21 which gives you a guarantee of say 5.5%.
30:24 I really know people who have invested long-term
30:27 in insurance schemes without knowing the return,
30:31 just the fact that they get a guarantee,
30:33 but then when you do an XIRR,
30:34 it comes to around 5.5% post-tax.
30:38 Now 5.5% post-tax can get wiped out
30:42 if there is a couple of years of hyperinflation,
30:44 like what happened in 2011 and '12.
30:48 If you have inflation in the range of 10 to 15%,
30:52 then you are wiped out for a good half a decade
30:55 of your investment returns go.
30:57 So purchasing power risk needs to be factored in.
31:01 And third is regulatory risk.
31:03 What if in that long tenure of 15 years, regulations change?
31:08 People may not remember,
31:11 but there was a certain finance minister in the past
31:14 who questioned the exempt, exempt, exempt regime
31:19 of public provident fund.
31:22 You get a tax exemption when you invest,
31:24 all the interest that accrues is tax exempt,
31:27 and your final payout is also tax exempt.
31:30 So he said that it was too good to be true,
31:32 and then they were mulling some sort of taxation
31:36 at withdrawal or accrual.
31:38 So in 15 years, you could get a regulatory risk also.
31:42 Mind you, there is a regulatory.
31:43 When I started investing in public provident fund,
31:45 I knew the interest rate for the entire year.
31:49 Okay, and it didn't change from the previous years,
31:51 but now interest rate is reset every quarter
31:53 and it's very market aligned.
31:55 So there is a regulatory risk
31:57 even in capital guaranteed products.
31:59 So investors should take cognizance of these three risks
32:03 apart from the risk of default in your investments.
32:07 So assuming that the solvency and the sovereignty
32:10 of these investments is established,
32:12 you have these other risks
32:13 which an investor should take care of.
32:16 And one way of mitigating risk
32:18 is by asset allocation and diversification.
32:22 Who puts some money in these capital guaranteed products?
32:25 Some of them are really attractive
32:27 and some of them merit a place in your portfolio
32:29 because they give you peace of mind,
32:31 but you need to also invest in certain other financial assets
32:35 like equities or hybrids or debt schemes,
32:38 which will give you the liquidity,
32:40 which will protect you from a certain amount
32:42 of purchasing power risk.
32:45 So I think that's my take on this, Anil.
32:48 - Right, right.
32:49 So while we are talking about guaranteed products,
32:52 the other end of the spectrum,
32:53 we have these common fads that come up in the market.
32:57 So Mr. Sadhgopan, I'll come back to you.
33:00 Like for example, in 2021,
33:02 crypto suddenly became very popular.
33:04 And we also spoke to people
33:08 and common people who didn't have enough capital
33:11 also went for cryptos.
33:13 So from time to time,
33:15 people also sway between guarantees and then fads.
33:18 So how does one be resilient against these kinds of fads?
33:23 - So, I mean, this is a common problem
33:29 that we face all the time.
33:30 So in 2021, it might have been cryptos,
33:34 but before that we have faced real estate,
33:36 we have faced gold, we have faced liquidity.
33:38 We have faced so many different fads
33:40 at various points in time.
33:41 And one long, long time back, it was tea plantation.
33:44 I mean, so there have been multiple fads
33:46 and people are willing to stake their all
33:50 in these kinds of fads.
33:51 See, the problem is if we actually have put together
33:54 a carefully curated portfolio,
33:56 and that is supposed to meet all the requirements
33:59 of the investor.
34:00 If we have to pursue the fad,
34:03 the money has to come from somewhere
34:05 where we have already invested, right?
34:08 So the point is now suddenly,
34:10 if you want to put some money into say maybe crypto
34:13 or maybe something else,
34:15 which I mean, which had it been a worthwhile asset class
34:20 to pursue, it will already be the overall portfolio,
34:24 overall asset allocation, we would have included that.
34:26 So if somebody wants to pursue a fad,
34:29 that means that it is currently not there
34:31 and probably they may want to invest
34:34 into that particular asset class.
34:36 So we will have to really question the merit
34:38 of that thought process itself.
34:41 And a lot of people, a lot of investors,
34:44 they only look at, okay,
34:46 what is the return it is currently giving?
34:47 So they're essentially looking backward
34:50 as to what kind of return it is currently giving.
34:53 And a lot of times when investors really want to get
34:55 into an asset class, they have been watching
34:58 on the sidelines for quite some time.
35:00 And after a particular point
35:01 when it has already run up significantly,
35:04 and there is a lot of reporting on that,
35:06 then they get all excited
35:08 and then they want to get into an asset class.
35:10 This happens again and again.
35:11 Investors always buy high sell low.
35:14 So this is a typical problem.
35:17 So this is a behavioral problem.
35:19 And that is one of the things which we as financial advisors
35:22 would want to guard our clients against.
35:24 So crypto, whatever you're talking about,
35:27 it's not really something very different
35:30 from the various other cycles that we have seen.
35:33 The favorite line which I always tell my clients is that,
35:37 I mean, if you really want to be invested
35:40 in a particular product and that is going up,
35:43 so it should have been part of your overall asset allocation
35:47 right at the beginning.
35:49 Only then you will be able to really ride that wave,
35:52 not by getting into that wave
35:56 when the wave is kind of at the top.
35:59 So the point is, it's very, very important
36:02 for somebody to have the asset allocation right
36:05 and not unnecessarily get excited
36:07 about something which is rising at certain point in time.
36:11 In fact, I would say, I go to the extent of saying
36:14 that we should completely ignore these fads.
36:17 I mean, that fads will keep happening from time to time.
36:20 We should do what is most appropriate
36:23 from our point of view.
36:25 If crypto is appropriate, yeah, I mean, fine, no problem.
36:28 I don't have a problem.
36:29 Crypto is a very volatile asset,
36:31 maybe 2, 3, 5% of one's portfolio,
36:34 depending on your risk profile,
36:35 depending on, I mean, how much knock
36:39 you are willing to take in your portfolio
36:40 based on that you can have.
36:42 But that should be a very considered decision.
36:45 It cannot be a knee-jerk thing
36:47 just because it is given 400% return.
36:49 - Right.
36:51 Mr. Sadagopan has talked about asset allocation.
36:54 In fact, all the panelists today have spoken
36:57 about the importance of asset allocation
36:59 and which can help investors not just be resilient,
37:03 but be planned about their future.
37:06 So, Mr. Rao, when it comes to mutual funds,
37:08 it offers a multitude of options
37:11 from equity to debt to hybrid.
37:13 You also mentioned the multi-asset funds,
37:16 which are actually in flavor this year.
37:19 I think there have been many NFO launches this year.
37:22 So how does one choose among these?
37:24 What is the approach that one should take?
37:27 - Thanks, Nidhi.
37:27 I think, I mean, when I take,
37:29 when Harish was talking about insurance
37:31 and guarantee returns, when it's a crypto,
37:33 as you rightly put it,
37:35 it's a vacillating from this side to this side,
37:37 but we ignore that there is one asset class
37:39 with a mutual fund itself
37:41 is the fixed income asset classes or the debt funds.
37:44 And the mutual funds give such a varied option.
37:47 Honestly, if somebody is looking at an investment bucket,
37:49 I don't need to go anything beyond mutual funds.
37:52 I mean, incidentally, for us, it's a mandate.
37:54 I can't invest in outside.
37:56 And that mandate has helped us so much,
37:58 whether it's a part of the skin in the game
38:00 or part of the, we invest only in mutual funds.
38:03 And it works so,
38:04 at the end of the day, when we assess our portfolio,
38:07 we have got it very rightly done.
38:09 And this fixed income securities,
38:10 when earlier Harish was talking about guaranteed returns,
38:13 I mean, somebody at a 5.5% guaranteed,
38:15 yes, you are comfortable,
38:17 but when inflation is eating away
38:18 and then this guaranteed returns
38:20 will not give you the cushion,
38:22 where the debt funds comes in a very right way.
38:25 And debt funds works on a simple philosophy
38:27 investor need to understand.
38:28 It is not very difficult to understand.
38:31 You know, my money,
38:32 I know where it is invested and how it is invested.
38:34 Debt fund, it runs on two concepts.
38:37 One is the accrual, second is on the duration.
38:39 To put it for the investor angle,
38:41 you get an investment income
38:42 and there is a capital appreciation
38:44 because of the duration.
38:45 And debt funds gives you that liquidity
38:47 or like, you can invest according to
38:49 your investment horizon.
38:50 For example, if somebody want to invest
38:52 for even a day you want to make money,
38:54 there is a fund called overnight fund.
38:57 Or you want to put for say three months,
38:59 then there is a fund called liquid funds.
39:02 Then one year and above you have a money market
39:03 or corporate bond fund or credit risk.
39:06 Since you have a plenty of choice,
39:08 all that I need to do is I need to match
39:09 my investment horizon with the fund
39:12 which I am choosing.
39:13 And though sometimes we confuse people
39:15 with the durations when we speak out outside.
39:18 I mean, you know, say if I talk something
39:19 about Macaulay duration,
39:21 investor gets knocked off and he says,
39:22 "I am more safer at my fixed deposit."
39:25 Then rather if I can convert that
39:26 into a simple language,
39:28 don't worry about the Macaulay duration,
39:29 worry about your own duration.
39:31 Say you have a three to six months money,
39:33 then give it to me in my ultra short term fund.
39:36 You have a six to 12 months deposit,
39:39 give it to me in my low duration fund.
39:41 If you have one, two to three years of money,
39:43 please put it in my short duration fund.
39:45 Or three to four years money,
39:46 you can give me in my medium duration fund.
39:48 Or seven years money,
39:49 you can give it to me in long duration fund.
39:52 And which can reasonably give,
39:53 one is a liquidity as available
39:55 as earlier Harish was talking about.
39:57 Second is like, you know,
39:59 this is at most transparent when to,
40:01 I mean, you know,
40:02 we are invested and how it is invested.
40:04 And coming to have a simple strategy,
40:06 I'll put it in an acronym,
40:07 which is IRDA.
40:09 You know, that's what you need to do
40:11 while you're investing in mutual funds,
40:13 debt funds especially.
40:14 Now, what is your investment goal?
40:16 And what is your risk appetite?
40:18 And how diversifying you are doing it?
40:20 And the one is the last Suresh spoke about earlier
40:24 was the asset allocation.
40:25 - Right.
40:26 - If you can follow this IRDA,
40:28 then underlying is,
40:30 look at the performance over a period
40:31 and have a professional advice.
40:33 And debt funds can be a fantastic way.
40:35 And debt funds are the fixed income securities,
40:37 which are invested simply into the government bonds
40:39 or corporate bonds or treasury
40:41 or other debt instruments.
40:43 And, you know,
40:44 we are not investing in assets
40:45 which you don't understand.
40:46 And incidentally this month we are starting,
40:50 I think today a regulator will sign off for us.
40:53 And we will be signing debt key bucket.
40:55 You know, it's,
40:56 we are promoting like no mutual funds.
40:59 Like debt funds.
41:00 - Okay.
41:01 So coming to the end of this session
41:02 and we are running out of time also,
41:04 maybe one takeaway for investors from each of you.
41:07 - See, investment is a slightly boring kind of an activity.
41:12 I mean, if you are really looking for excitement,
41:14 there are a lot of other places for excitement.
41:17 As far as investment is concerned,
41:19 you just need to assess properly,
41:22 put it in proper buckets.
41:25 And I mean, from time to time,
41:27 you just have to take a look at that
41:29 and it will all work out over a period of time.
41:32 And there is no point in chasing fads, nothing.
41:34 So it's, in a sense it is a very sedate,
41:38 I would even call it boring,
41:40 but that is what actually produces results.
41:42 So, I mean,
41:43 I'm just asking the investors to stay with it
41:46 and not try to do any live wire tactics
41:49 with their investments.
41:51 - Great, Mr. Harish Rao.
41:53 - I think one should learn from their mistakes, Nidhi.
41:57 Like, my favorite quote or metaphor of mine
42:02 is what I learned in the bull market of 2000,
42:05 the dot-com bull market of 2000,
42:08 in which I made some pretty silly investments
42:11 and learned a mistake.
42:13 So a very senior advisor friend of mine
42:17 told me a quote which I will never forget
42:19 and I would like to share with the viewers.
42:21 When an investor with money meets an investor with wisdom,
42:26 the investor with wisdom gets the money
42:28 and the investor with money gets the wisdom.
42:31 So that's what I got in 2000.
42:33 So when the global financial crisis happened in 2008,
42:37 I was the guy with wisdom
42:39 and there were a lot of other people with money.
42:41 So I got their money and they got my wisdom.
42:45 So learn from our mistakes
42:47 and I think that will be a wonderful thing
42:49 to take along with us.
42:51 - Great, Mr. K S Rao.
42:52 - Nidhi, I'll just sum it up in a way.
42:55 This is like, this World Investor's Week,
42:57 IOSCO has said, be a smart and be a responsible investor.
43:01 Probably I'll take it from the other one,
43:03 first be responsible.
43:04 And responsibility to yourself and your family
43:07 because it is your money, your hard-earned money
43:09 and every rupee is important
43:10 and you need to be investing in it
43:12 according to your goals and rightly do it
43:14 and that responsibility.
43:16 And of course we spoke about being a smart.
43:18 Smart is always, we talk about the smart goals,
43:21 specific measurable,
43:22 but I'll talk this smart as when it comes to investment
43:25 and when we spoke about sustainable finance,
43:28 that smart I can define is,
43:30 first is your sustainable investment.
43:32 Forget about sustainable finance,
43:33 very whether you are doing that.
43:35 And second is, M is you're managing your volatility.
43:38 That's the most important part
43:39 and there is a simple strategies which we spoke about it.
43:42 A is your asset allocation,
43:44 which play a vital role in creating the long-term wealth.
43:47 And R is understand the risk, understand the return,
43:51 risk versus return, where you want to put it.
43:54 That's where you need to look at to become that R of it.
43:56 And T is whether you want to look at time in the market
44:00 or timing the market where you want to play.
44:02 Then you'll be the smart investor
44:03 if you get this smart right.
44:05 - Thank you so much gentlemen today for this discussion.
44:10 And the takeaway for our viewers is I think,
44:15 be responsible, disciplined,
44:17 take care of your asset allocation
44:20 and be smart about your decisions among other things.
44:23 So thank you so much for joining us today.
44:26 Good day.
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