Friday, January 3 2025
Source/Contribution by : NJ Publications

Do-It-Yourself (DIY) investing has gained significant popularity in recent years, with more and more individuals taking control of their financial future. While it can be empowering to manage your own investments, it's essential to weigh the risks and rewards carefully.

The Appeal of DIY Investing

• Control: You have complete control over your investment decisions.

• Potential for Higher Returns: With active management, DIY investors can potentially achieve higher returns by taking advantage of market inefficiencies or undervalued assets.

• Lower Costs: DIY investing eliminates management fees and commissions typically charged by financial advisors.

• Learning Opportunity: DIY investing can be a great way to learn about financial markets, investment strategies, and personal finance, helping individuals become more financially literate.

The Risks of DIY Investing

Before embarking on your DIY investing journey, consider the following factors:

• Time Commitment: Successful investing requires significant time and effort to research, analyze, and monitor investments. Do you have the time and energy to dedicate to research and analysis?

• Emotional Decision-Making: Emotional biases can cloud judgment, leading to impulsive decisions. Can you remain calm and rational during market fluctuations?

• Financial Knowledge: A solid understanding of financial concepts, market trends, and investment strategies is crucial. Do you possess the necessary financial knowledge and skills to make informed decisions?

• Diversification Risks: Without a well-thought-out strategy, DIY investors might inadvertently concentrate their portfolios, increasing risk. Can you diversify your portfolio without expert advice?

• Regulatory Knowledge: Navigating investment regulations and tax implications can be complex, and DIY investors may overlook important compliance issues.

• Opportunity Cost: Time spent on DIY investing might be better spent on other endeavors, such as career advancement or personal interests.

If you're unsure about your ability to manage your investments effectively, consider seeking professional advice from a financial advisor.

Role of Financial Advisor

A Financial advisor plays a pivotal role in the investment journey of an individual. They act as a bridge between the investor and the investment products, guiding and assisting investors in making informed decisions.

Here are the key roles and responsibilities of an advisor:

• Need Identification of investor

Every investor has unique financial needs. Advisors assess an investor's current financial situation—such as income, expenses, assets, and liabilities—to gain insight into their overall financial health. They assist investors in clarifying their financial objectives, whether related to retirement, education, buying a home, or other significant life events. Once these needs are identified, advisors help prioritize them and estimate the necessary investment amounts.

• Ascertain right Asset Allocation

Advisors tailor investment strategies to each investor’s unique needs. By assessing an investor's risk tolerance, financial needs, and time horizon, advisors can construct a diversified portfolio that balances risk and reward. This involves carefully allocating assets across various asset classes, such as mutual funds, stocks, bonds, etc. to optimize returns while minimizing risk.

• Hand hold investors in volatility, so that they don’t diverge from their Asset Allocation

The financial market can feel like a roller coaster, with unpredictable ups and downs. In times of economic turbulence, emotions like fear and greed can cloud investors' judgment. Navigating market fluctuations can be challenging without guidance. Financial advisors help investors transform market chaos into opportunities for long-term growth. During volatile periods, a rational advisor serves as an anchor, ensuring that clients stay focused on their financial objectives.

• Maintaining Detailed Records and Adhering to Regulations

Advisors meticulously maintain detailed records of all client interactions, transactions, and investment decisions. This ensures transparency, accountability, and compliance with industry regulations. By adhering to strict regulatory guidelines, advisors protect the interests of their clients and maintain the highest standards of professional conduct.

• Beyond Short-Term Performance

While past performance can be a useful indicator, it's crucial to remember that past performance is not indicative of future results. Focusing solely on short-term fluctuations can distract investors from their long-term objectives. A more sustainable approach is to adopt a long-term perspective and prioritize a well-diversified portfolio that aligns with your risk tolerance and financial objectives.

• Portfolio Review and Rebalancing

Market conditions are constantly evolving, and it's essential to regularly review and rebalance your investment portfolio. Advisors play a crucial role in monitoring market trends, assessing portfolio performance, and making necessary adjustments to ensure that your investments remain aligned with your financial needs. Investors stay informed from regular reports and insights from advisors amidst market shifts.

Final Words

Ultimately, the decision to pursue DIY investing is a personal one. It's important to weigh the potential benefits and risks carefully and choose the approach that best aligns with your financial needs and risk tolerance.

Friday, June 21 2024
Source/Contribution by : NJ Publications

Mutual funds are financial intermediaries that enable millions of small and big investors across the country to engage in and benefit from the capital market. Since its inception in 1963, the mutual fund industry in India has seen tremendous growth and development, reflecting the evolving dynamics of the country's financial landscape. Mutual funds have today become one of the most popular financial instruments used by both retail and institutional investors to meet various financial needs. This industry has expanded enormously in all aspects, including assets under management (AUM), number of schemes, mutual funds, fund houses, etc.

The Indian mutual fund industry is one of the fastest-growing markets in the world, with the mutual fund industry's AUM multiplying more than 6-fold in the past decade to Rs. 53.4 lakh crore as of March 2024, from Rs. 8.25 lakh crore in 2014. There are around 45 mutual fund houses in India, but the top 10 fund houses or AMCs manage around 78% of the total mutual fund assets, according to the data by ACE MF.

The financial year 2023-24 (FY 2024) turned out to be a standout year for the Indian mutual fund industry, marked by impressive growth, dynamic upheavals, and evolving investor preferences. Below are some of the milestones that mark FY 2024 to be a blockbuster year for India’s mutual fund industry.

Remarkable Growth in AUM

The recent milestone of crossing Rs. 50 lakh crore in AUM for the first time in history, demonstrates the resilience of the industry and its key role in building long-term wealth. AUM witnessed a remarkable surge by nearly Rs. 14 lakh crore, reaching a record high of Rs. 53.40 lakh crore as of March 2024 compared to Rs. 39.42 lakh crore as of March 2023.

This astounding growth rate of over 35% marks the highest since fiscal 2021, driven by robust market performance, increased participation of individual investors and evolving investment strategies.

Broadening of Investor Base

Along with the jump in AUM, the industry experienced a huge growth in mutual fund investors. The investor base grew to over 4.46 crore, with women accounting for approximately 23% and men around 77%, indicating a diversified and inclusive participation in mutual funds. Out of 4.46 crore investors, nearly 16% (i.e. 70 lakh investors) were added in the last one year and around 47% (2.10 crore investors) in the last 5 years, demonstrating the growing awareness of mutual funds in India.

Performance of Equity-oriented Categories

Equity-oriented mutual fund categories witnessed an outstanding growth of 55% during the fiscal year 2024, reaching Rs. 23.50 lakh crore in assets. This growth was driven by strong inflows and mark-to-market gains, with multi cap funds reporting a highest growth rate of 85% followed by small cap funds at 82%.

The category saw net inflows of Rs. 1.84 lakh crore in the FY 2024, as compared to an inflow of over Rs 1.47 lakh crore in the last fiscal year.

Equity markets represented by Nifty 50 total return index (TRI) and Nifty 500 TRI increased by around 33% and 44% respectively, during the fiscal year.

Noteworthy Advancements in Hybrid Funds

Hybrid funds surpassed the Rs. 7 lakh crore mark in FY2024 with asset gains of more than 50%, closing at Rs 7.22 lakh crore as of March 2024 compared to a flat growth in the previous fiscal year. Growth was driven by investors following the asset allocation strategy and investing in market arbitrage opportunities. Arbitrage funds saw the highest inflows in the category of more than Rs. 90,000 crore during the fiscal year.

In terms of AUM growth, multi asset allocation funds emerged as the highest category within the hybrid funds marking the growth of 153%, followed by Arbitrage funds with the growth of 127%. However, in terms of assets, dynamic asset allocation / balanced advantage funds emerged as the largest category with assets of nearly Rs 2.50 lakh crore as of March 2024.

Asset Growth for Passive Funds

Passive funds saw another year of asset growth; the segment continues to benefit from institutional inflows into ETFs having assets of Rs. 6.64 lakh crore as of March 2024. Thiscategory saw inflows of Rs. 42,000 crore in the fiscal year, compared to inflows of around Rs. 61,000 crore for the overall passive funds category.

Relative Stability in Debt Mutual Funds

Debt funds saw a moderate growth of roughly 7% during the fiscal year, with an asset base of Rs. 12.62 lakh crore, following contractions in the preceding two fiscal years. The category also gained in folios, but only slightly, to over 5,000 in fiscal 2024.

Money market and liquid funds saw the largest absolute asset gains among debt mutual fund categories, totaling Rs 40,000 crore and Rs 31,000 crore respectively. Money market funds also saw the second-highest percentage rise in the fiscal year, at 37%.

Rise in SIP Contributions

Investors continued to pour money into mutual funds through Systematic Investment Plans (SIPs) as monthly inflows reached Rs. 19,300 crore in March 2024 from Rs. 13,700 crore in April 2023, reflecting a jump of 40% in one financial year.

The total inflow into all the mutual fund schemes through SIPs stood at nearly Rs 2 lakh crore, 28% higher than Rs. 1.55 lakh crore recorded in the previous financial year. This shows increasing investor confidence and commitment to disciplined investing.

SIP assets stood at Rs 10.71 lakh crore as of March 2024, accounting for more than 20% of the industry assets. Further, the number of SIP accounts reached nearly 8.4 crore with approx 17 lakh new accounts added per month.

To Conclude:

The Indian mutual fund industry has a strong foundation for continued growth driven by favorable demographics, rising financial literacy, technological advancements, increasing investor confidence, and diverse fund offerings.

Investment in mutual funds will become even more accessible as a result of the ongoing digital adoption, attracting new participants from smaller towns and cities. Regulatory reforms and investor education programs can further boost investor participation and trust in the industry. India's rising millennial and youth demographic presents a vast opportunity for the mutual fund industry. This dynamic and tech-savvy generation can become the industry’s driving force in the coming days.

However, it is important to consider economic factors, regulatory changes, and investor sentiment for navigating the journey ahead.

Friday, June 15 2024
Source/Contribution by : NJ Publications

Whether you are an investor or not, it is pretty certain that you must have heard about the famous Chanakya or his Nitis.

Chanakya was not only a greatest scholar, economist, and political strategist but also a proponent of astute financial management. His teachings, encapsulated in the treatise "Arthashastra," offers valuable insights for modern-day investors striving for financial success in life. From political strategies to governance and management skills, he excelled in all areas. Chanakya’s ideas and principles were so influential that they are still considered management axioms today.

In this blog, we explore Chanakya's enduring wisdom, his teachings to unearth valuable investment lessons for enhanced financial management and success. While the era may differ, the core principles of strategy, foresight, and skills remain as pertinent today as they were centuries ago.

1. Have a Plan in place before investing

“Before you start any important work, ask yourself three questions: why am I doing it? What the results might be, and will I be successful? Only when you think deeply and find satisfactory answers to these questions, go ahead”

It's always advisable to outline a comprehensive plan before embarking on any endeavor, and this principle holds true for investment as well. Establishing a clear plan is paramount to success in investments. Without defined objectives, navigating questions such as where to invest, how much to invest, and for how long can be daunting.

However, when you align your investments with specific needs, the entire investment process becomes more streamlined. By understanding your objectives, you gain clarity on the duration of your investment horizon. This, in turn, enables you to determine the required investment amount and the most suitable investment vehicles to attain your target. If you don’t know where you are heading, it doesn’t matter how quickly you run!

Furthermore, syncing your investment with your needs encourages you to remain committed to your investment strategy. It serves as a deterrent against impulsiveness, which can be your greatest enemy in financial endeavors.

2. Build an Emergency Fund

“Save your wealth against future calamity...when riches begin to forsake one, even the accumulated stock dwindles away”.

This advice from Chanakya underscores the significance of establishing an emergency fund, which is vital for ensuring financial security and stability. An emergency fund serves as a financial safety net, enabling individuals to address unexpected financial challenges such as adverse market movements, medical expenses, significant home or vehicle repairs, job loss, and more. Financial experts typically recommend maintaining an emergency fund to cover at least six months' worth of expenses. In adverse situations, an emergency fund meets your daily needs so that you don’t have to tap into your long-term investments. Emergency funds help you stay afloat without relying on loans or credit cards, thus, prevent you from falling into a debt trap.

3. Embrace corrections, stay committed to your investments

“Once you start working on something, don’t be afraid of failure and don’t abandon it. People who work sincerely are the happiest.”

Over the past few decades, stock markets have experienced several corrections triggered by various factors such as pandemics, scams, and economic downturns. However, regardless of the cause or the severity of the decline, equity markets have always bounced back in the subsequent years.

During periods of market corrections, many investors panic and sell off their investments at a loss. This behavior often converts potential paper losses into real ones. However, investors who demonstrate patience and remain invested typically emerge as the most satisfied in the long run.

4. Don’t plunge into the well to gauge its depth

“Learn from the mistakes of others…You can’t live long enough to make them all yourselves.”

Observations can be a powerful teacher. Not all lessons require personal experience. Astute investors glean insights from others' missteps, safeguarding their own finances by avoiding similar errors. For instance, if a pattern emerges of consistent losses in penny stocks among peers, why expose oneself to that risk? Both in management and investments, lessons often come at a high cost and are best absorbed through observations. Many renowned investors have candidly shared their mistakes in books or autobiographies. Only after a thorough comprehension of market mechanisms should one venture into investment.

5. Refrain from excessive indulgence

“Too much of anything is bad. One should refrain from too much.”

The principle of not going overboard applies to investments too. Putting too much into any single asset class can backfire. That's why diversification is a cardinal rule of investing. Diversifying across various asset classes like stocks, bonds, and gold offers better downside protection, ensuring a more stable investment journey, as not all investments perform well simultaneously.

6. Entrust your wealth solely to those who are deserving.

“Give your wealth only to the worthy and never to others. The water of the sea received by the clouds is always sweet.”

The growth or decline of your investments hinges on how effectively you manage your money. Investing in well-regulated products like Mutual Funds or NPS, where qualified professionals manage your money, can make your wealth work for you. Conversely, taking the DIY route might seem like a money-saving option initially, but it can be risky as you could encounter mistakes that would ultimately result in greater expenses down the line.

Conclusion

Embracing the Chanakya’s simple yet profound lessons can lay the foundation for a rewarding investment journey. By incorporating his teachings, investors can navigate the uncertainties of the market with greater confidence and resilience, ultimately achieving their financial needs and aspirations. It’s all about blending India's traditional wisdom with modern financial techniques. Investors can leverage the strengths of both worlds to optimize their investment strategies and achieve sustainable growth and prosperity.