Financial Planning mantra #5

Invest in New Fund Offers (NFOs) of mutual funds ONLY if there is something really very unique about them or it is the first of its kind. Even then, evaluate before you invest.

Each time a NFO hits the market you are bombarded with great flyers, posters, ads and presentations to convince you that this is the right time to invest. As an advisor, I have kept away from most ‘me-too’ NFOs. But I must humbly admit, in my initial days, I too failed to realize the ‘disguise’ in a few NFOs. Thankfully, I could not muster more than a handful of clients (some of whom themselves came forward) to invest in them, probably because somewhere in my mind I was not fully convinced. Today, three-and-a-half years and over 100 NFOs later I am a much wiser man. At all NFO-distributor meets, I pull out all stops to ask all wise and foolish questions. Because till the time I am fully convinced, I should not be taking it to my clients.

The only ‘plus’ point in any NFO is that ‘they do not carry any deadwood’ (as a friend of mine puts it).

Two major why investors fall for NFOs are:

- Most people equate a mutual fund ‘unit’ with that of a ‘share’ and consequently believe that a fund with a Rs 10 NAV is cheaper than that with a NAV of Rs 50. In mutual funds, there is no difference. In fact, a fund with a higher NAV is better, in the sense, it is more ‘experienced’. Of course, this cannot be applied as a blanket rule while choosing funds.

- Aggressive ‘selling’ (because of higher commission rates) by the banks (through ‘financial advisors’ and ‘relationship managers’) and individual distributors

Of late, I have noticed fund houses coming out with NFOs to shore up their AUMs (assets under management). Incoming money into equity funds had almost dried up from mid-2008 through the first few months of this year. With huge drop in share prices, the AUMs of all funds came down drastically. With sentiment improving, the last two months has seen fund houses ‘putting old wine in new bottle’ so that they can collect a few hundred or thousand crore (which would not happen under normal conditions).

The fund houses claim that the one of the purposes of a NFO is to grow the low base of retail investors (from 2%). But this logic is beyond my realm of understanding. If they really wanted more investors, they should focus more on their existing funds and show higher returns rather than just trying to mop up money in the name of growing the market. Look at it logically:
- Any one putting in money into an NFO would in all probability be an existing investor in mutual funds.
- A new investor (with no past experience in mutual funds) would come in only if he is made to believe that a Rs 10 NFO is cheaper. So he is made to start off on a false premise. It is not going to be long before he feels ‘cheated’ and vanishes forever.

Today NFOs have become a money mopping up exercise. Almost all kinds of permutation and combinations of funds are already there in the market (the only thing that is still not there is a ‘Silver ETF’).

A fund manager recently lamented that the size of the entire MF industry is less than one month’s of domestic savings. It is bound to be till fund managers and AMCs realize that the way to grow the size of this industry is to record higher and better performances of existing funds (thereby attracting fresh and new retail investors) and not by bringing out NFOs.

An introduction to financial planning

Here’s a lowdown on financial planning and how it can help you lead a life of your dreams.

Welcome to my first blog. Let me begin by introducing myself, my firm - Knowledge Partners - and our philosophy. I am an Associate Financial Planner and have also done my PGCBM from XLRI, Jamshedpur. In 2005, I moved to Gurgaon after spending 14 years in equity research, media and marketing at various firms in Bombay & Calcutta. Numbers always intrigued me. So did various financial instruments. But I also saw how people all around me were getting mislead by so-called ‘advisors’ and ‘agents’. While everyone wants a financially secure future, most people were either unaware or confused as to where and how to start. The result - decisions got indefinitely postponed; or wrong products were bought based on misinformation.

That’s what reinforced my decision to start my own financial advisory. And in 2006, Knowledge Partners took shape.

Financial Planning, as a concept, is still quite new to India. Traditionally, financial advice in Indian homes (invariably) comes from a family elder - who is, more often than not, heavily under influence of an insurance agent or a family friend.

Often, agents and advisors give you an improper advice so that they can make a quick buck. They often sell you a insurance policy or a mutual fund that gives them the highest commission or brokerage.

At Knowledge Partners, we believe in having a long-term relationship with all our clients and advise them to buy financial products they actually need. Our endeavor is to be a partner of our clients till the time they achieve their financial goals.

Have you planned your financial future?

You can get answers to this question by answering these simple questions:

· Have you started planning for your retirement?

· Have you wondering how to plan for retirement, children’s education and marriage in the face of rising inflation?

· Do numbers boggle you?

· Are your savings fetching you sufficient returns?

· Have you ever thought as to how many years you can maintain your current lifestyle if you were to take a sabbatical / retire?

· Is your money lying ‘idle’ in your savings/current bank account – would you not like to earn more than the meager 3.5%?

· Most of us limit our investments to tax saving instruments – or the amount that is to be covered under section 80C. But is that enough to meet all your future expenses? Will that create a sufficient corpus?

If these are some of the questions that are bogging you down, Knowledge Partners could be of help. We are a Gurgaon-based firm offering fee-based services in the area of financial planning having a clientèle in the Delhi-NCR region, primarily, and also in Bombay and Calcutta.

How do we go about it?

Our investment process begins with you. We perform a careful assessment of your individual needs and aspirations, and our evaluation is based on:

· Goals and objectives,

· Investment time horizon,

· Liquidity needs,

· Desired rate of return, and

· Tolerance for risk

The result is a complete understanding of your personal profile that will serve as the foundation for defining a long-term investment strategy tailored to your specific needs and preferences and not just catering to your ‘tax planning’ requirements u/s 80C.

Our philosophy is designed to achieve long-term investment goals, and is based on the following core principles:

1. Identify Your Unique Needs, Goals and Objectives

2. Build an Asset Allocation Roadmap

3. Formulate a Plan & Portfolio Selection

4. Continuous Portfolio Monitoring

We educate our clients so that with time they are more focused to achieve their goals and objectives with the help of their financial advisor, rather than by relying blindly on the latter.

Our fee-based approach is designed to eliminate conflicts of interest and results in unbiased and honest advice.

Money isn’t everything, but having control and confidence about how you are managing it can allow you to concentrate on other things like your family, your career, and your future. We believe that all your dreams are achievable and we look to partnering you so that you can live your dreams!