Should Investor Go for Direct Plan Post January 13 ?

Should Investor Go for Direct Plan Post January 13 ?

Recently SEBI has brought some regulatory changes in mutual fund where one if within the same scheme there will be direct plan with lesser expense ratio and lesser NAV and other will be normal plan with slightly higher NAV as it has brokerage expenses also included  . It raises the question what should be the right approach for both advisor and investor ?

First we have to understand this change brings different implication for different stakeholders in Mutual Fund Industry.

SEBI intention is to improve this business better both on qualitative side ( better advice , better product deliverables ) and quantitative side ( lesser cost ) . AMCs as manufacturers have the role to offer better products with better deliverables ( returns to investors )  . Advisors as the name itself signifies are suppose to offer good investment advice for the best interest of the client .

So if acted in total spirit of intention of this regulatory change industry is bound to gain . Coming back to investor what he should be doing – going direct or through advisor ? To me the question is not cost reduction but what value one is getting at what cost ? Client need to understand that by bringing direct plan does the role of advisor goes off ? Definitely not but in fact it becomes more relevant and necessary for client . How ?

Time is valued by most people in this world . Better and productive usage of time is key to success . In this fast moving world free time seems to get lesser day by day as apart from work hours , focus on health , mental well being through proper recreation , holidaying , networking, socialising etc are more on priority list.  Time being a big constraint how can any investor spend time to read , analyse various MF products , be updated on dynamic investment works , have a proper measure of various vagaries of risk etc . It looks easy but very cumbersome and only those can do who have interest and penchant to know and learn about the subject . Even if some one feel he can spend time on these then is it just to monitor own investment or due to real interest about subject .  Even if the investor is as knowledgeable and having updated awareness about product, performance etc still management of emotion ( greed and fear ), temptation to fall into trap, herd mentality , over reacting or underreacting to experience can not be ruled out and these things can be well managed with the association of an advisor with balanced frame of mind , unbiased approach and with mutual discussion and consultation they can take judicious decision .

People are working hard for better life , better livelihood , want to earn more and enjoy more . If earning money is important today growing and preserving growth of money is even more important and here comes the role of an Advisor . How one invest ( direct or through broker plan ) is  client decision but how well one invest is more important aspect . Investor have to understand that the role of advisor is not only at entry level but he is a guide to investor in the whole journey of investment .  One has seen the journey has not been smooth last 7-8 years but had its own highs and lows and so investor needs an advisor all the time to guide him, safeguard his interest and also ensure that his client reached his investment and financial goals well .

Even if a client decided to invest through direct plan but he should never leave the hand of his advisor who  has been providing good advice and service to him. With direct plan in place there could be effort for  allurement , temptation and also influencing on short term gain over long term benefit and it is here only that advisor will be of great help .  

MF products are most dynamic in nature considering the valuation is market determined and some short term swings can make investor uncomfortable . The reasons of such uncomfortable movements needs to be well understood and communicated and it is here the experience , expertise and knowledge of advisors comes in place .   Not so knowledgeable and less aware investor may take wrong call if not seeking advisors advice .  The service provided by the advisor can not be undermined be it sharing desired and relevant information on timely basis , analysing investment portfolio , sharing reasons on performance variables , clearing doubts if any, executing documentation and depositing process at R & T end , assessing and communicating right investment avenues matching client suitability  etc etc .

The utility factor of an advisor has to be fairly and honestly evaluated by investor . Then he needs to ask just one question to himself – Do I really need him or not ? If answer is yes then he should continue his association .  Any service has to be judged in terms of value add it offers and if there is good value add then that service also has to be fairly priced to keep economic interest intact of service provider . In this case also based on mutually agreed economic interest of both entities the relationship will continue and flourish whether it is fee provided for the advice and services or in built in product pricing . My advise to investor will be never compromise on short term small benefit for long term big gains as human relationship is not just about money and cost but concern and care about each other well being and growth and not easy to price it as well .

Roti , Kapda , Makaan Aur Nivesh

Roti , Kapda , Makaan Aur Nivesh

In good old days three basic necessity was “Roti, Kapda aur Makan”. Though this three still hold true but I feel today there is addition to three basic demands and that is Nivesh (Investment ) so now it should be “Roti, Kapda , Makan and Nivesh” .

Let us understand that today we are not having the same way of living as what our earlier generation used to live. Infact why to go back so far even the world was much different some 10 years back. Earning was less, avenues of spending were few and more of routine type, saving pattern was there but more confined to conservative financial instruments. Now more earning, more spending and more enjoyment. The world is now full with choices and varieties in every aspect of life. Roti in today’s parlance means Pizza, Burger , Dining with family at restaurants etc. Kapda in today’s world means better and modern clothing of foreign brands from Malls and Makan is not a symbolic thing to mean a roof under head but a place with modern amenities, full of facilities, electronic items etc.

Why Nivesh ? Today we have moved more towards consumerism and in a bid to enjoy we need to ask are we overspending or in other words are we underinvesting. For most people money earned find itself at two route either spending or saving/ investment. So one needs to judge is their proper balance between spending and investment ? Spending is for today whereas Investment is for tomorrow. If today is known and we want it good so tomorrow which is not so known so have to be planned well to be equally good. And so importance of Nivesh ( Investment ) becomes all the more important.

There are some needs which will be there irrespective of the fact how good or bad we change our style of living and those needs are child’s education , child’s marriage , post retirement expenses, medical expenses. Some of the new generation needs are annual holidaying , changing car and luxury items on account of new additional features or due to fashion. Even some of the present day needs like car, refrigerator, AC was luxury a decade or two back. So in short old needs have been added with some new needs also. Inflation seems to be annual regular growth occurrence. So cost of tomorrow will be much more than cost of today . So if we just spend everything today are we left for anything for tomorrow ?

Nivesh is also important because if I am having good life today I will like to maintain that in future also and that all will happen if I have right quantum of money at right time. Today we find some changing trends than our earlier generation – Private job more in demand than govt job so stability factor not that much which in turn requires plan for if some instability comes ,  pension and PF missing in many jobs so need to save to build corpus for post retirement expenses , joint family giving way to single family , childrens preferring to stay separate than parents so again save for post retirement and old age expenses , On one side longevity has increased i.e. more years to live and on other side more and frequent health problem requires more time, attention and money to stay fit and healthy.

Earlier generation believed in providing good education to their children and today it is not only good education but preferring to send children for abroad studies and so more money required at disposal at right time, earlier generation hardly thought of vocation and if it was it was to native place , to grandma place or some relatives but now the whole world is open to tour and there are annual and biannual holidays and that also does not come free but require a good amount of money. Todays marriage are not just display of rituals and a normal affair as was yesteryears it is a display of one’s status, full of pomp and show and demands big amount of money.

One major change in behaviour of young citizens of India today I see is, enjoy your life in the best possible manner. It’s a very good shift in thinking but again just as we say “past”  is “yesterday’s present”. In the same way “future”  is “tomorrow’s present “ so though present is most important in our life but future has a thread joined with present and how stronger that thread is made all depends on what best done today.

Earn, save and invest are three logical flow in terms of anyone life once he graduates from student to work. You earn because you require money for livelihood. You save because you require money for tomorrow also. You invest because you require more money for tomorrow because of rising price (inflation) and also growing and new needs. If I go back to when I started earning way back in 1989 I had never thought at that time of some of the expenses I am going to meet in future but the reality is with changing world, consumerism those came and I had to go for it. So another very important learning is tomorrow expenses may or may not known but to be met by that days’ current earning or from today’s saving (investment ). So start investing, start investing early, start investing wisely and live a very happy, enjoyable life tomorrow.

Where to Invest Today -- Debt or Equity Mutual Fund Scheme

If you talk to any investor today where he wants to invest his obvious choice is Debt investment be it Fixed Deposit , Bonds , Debt MF . The reasons are clarity and assurance of some quantum of return vis a vis Equity products which on one hand have given poor return on historical basis up to 5 year period and also sentiments on economic and business front not so encouraging considering negativism and pessimism from all sides be the Government, Industries, Market movers etc . What is more disturbing that the players operating in equity side mainly AMC to a large extent they seems lot shaky on Equity MF product and has been mainly focussing on Debt product as it is easy to mobilise money from that side considering present day investment and sentiment .

No financial asset or Product can be categorised as Bad . All financial product have certain inbuilt risk and that was there 50 years back and will always be there because that is the basic characteristic of that product category . Risk in simplest terms can be defined as the variability in expected return . It is the economic situation that dilutes or magnifies the risks depending being in positive or negative stage .

Let us analyse present situation . A debt investor is happy to get 9-10% annualised return last 1 year but it has come on the backdrop of high interest rate . Why high interest rate ? because of high inflation , real return from debt side had to be positive so interest rate has to be more than inflation .  Is high inflation or high interest rate a positive scenario in a growing or developed economy . All developed economy have thrived on low interest rate last many decades so even if a debt investor feels he has gained a lot from his debt investment he has to remember it is an outcome from not so favourable economic situation . No business like high interest rate scenario as there is higher interest pay out and it eats their profit .

Debt investment is like a loan where entity with surplus gives at a some cost to entity with deficit which requires the money. The cost is called interest . Naturally one that gives money would like more interest and one that has to pay interest will like to pay as less as possible and balance is struck depending on credit worthiness of one which requires , time for which taken , nature of work for which money taken , and his level of urgency .  Its clear that the two parties involved look their respective gain i.e. interest rate in different direction and so expecting debt investment return always rising or very high is not at all possible on consistent basis . If you look historically return from debt investment is always range bound and mostly have been in 6-14% range on any time scale.

If I look in Equity Investment side , one with surplus puts money in business of the other entity ( through direct investment , buy shares , Equity MF schemes , PE etc ) . Here the objective is to partner for growth and more return. Interest  of both the entities is in same direction and not opposing each other .   If you look historically return from equity has big range in shorter duration but once moves in longer time duration it range gets narrow and moves in high positives which implies more assurance on quantum of return

Lets see two entities one big , proven business , track record of good sales, profit and then 2^nd entity small , not proven , no or less track record of sales , profit. If one does debt investment and evaluate from return and safety perspective he finds the first entity will be willing to pay at lesser interest rate for the money it raises from investor than the second entity so as an investor one gets more return from 2^nd entity but at the cost of safety of his money. So if safety was the criteria of investing in debt then investor has not acted wisely by loaning money to 2^nd entity . So it is a trade off between safety and return if you opt for which entity to loan or do debt investment with.

Again lets look from equity investment perspective – with whose business I would like to get associated . Obviously first entity as I stand to gain more in return from there than the 2^nd one. So if return and safety was the criteria for investment one has taken right decision on both parameter  .

Investing in any asset or product has to be done with proper conviction . One should know very well what to expect from the product in terms of return and how long to wait for it . The problem which has been is most investors take a trailing decision i.e. follow the experience of other in anticipation to feel the same . One has seen someone getting 50% return and seeing that puts the money expecting to get the same . It might happen or might not also. The 2^nd investor needs to see that in most case he has entered the upward growing return curve at the time when it has already reached some height and so one he has missed the opportunity which the first one has benefitted  and the factors which led so steep rise in first instance will it remain to be there ?. Return from equity comes from the business ( product, sales , profit ) and it is helped or negated  by economic situation positivity or negativity .

Returns from Equity Mutual Fund scheme and Debt Mutual Fund scheme are function of time . If one takes on time scale will find return from debt schemes  safe and its quantum assured and known for 0 to 6 month period which is total different in case of equity scheme which can range from negative to positive return, very high to low return . If again one takes 6 month to 2 year period return from debt shows similar behaviour but with some variability in quantum of assured and known return and in equity category the range of variability might be a bit lesser than first instance . Again moving from 2 year to 3 year or 5 year one will find more variability in assurance on quantum of return from debt side than the previous instance and in equity again lesser variability in return than previous instance.

Reason for above is that there is more risk in debt as time horizon is longer because of repayment risk , due to inflation interest rate can change so interest rate risk , due to change in interest rate there will be reinvestment risk of interest money . It is as simple as that if we give some one money we feel safe if the person say he will return money in 6 month than the person who says will return money in 6 years .  Whereas in equity mf investment if the business is doing well , products are getting sold more, profit is on rise then more positivity is created in the mind of all stakeholders be in consumer, promoter, investor and this adds for more concerted effort to drive further sales , revenue, profit and thus return to investor .

So the learning is variability in return and assurance of quantum of return from both Debt and Equity MF schemes moves in different direction on time scale. On lesser time horizon debt investment in better choice and in longer time duration equity investment is a better choice . The only dilemma is what is the long term . To me the level from which additional return from debt investment becomes negligible or there is return from equity balances that of debt and from this time horizon lesser possibility of return from equity going down vis a vis debt investment all incremental investment should flow in to equity mf scheme but the caveat is to have conviction , faith and patience .

Does it make sense to invest in Equity MF when chips are down

Well if today we ask anyone to invest in Equity MF then that person will give you a good hard look and will ask are you in your senses ? How come you can ask this question when you know what has been the return in last some years. Yes it is true that even last 5 years return in Equity fund does not look very attractive and so this repulsion toward Equity MF investment.

There are always two way of deciding, one from heart and another from brain. The decision from heart is mostly emotional and at times may lead to wrong decision but by the end of the day we are all human beings and at times heart rules the brain. When we use the brain we are logical and evaluate pros and cons and prove correct most of times.

Now a simple fact – why we invest ? obviously to see money growing. So we want the money to grow but not see it losing its value.

Stock market went up to 21000 level and then have been in 18000 levels for quite a long time and then last few months going down to 16000 level. Well only God Knows what holds next. As there is a famous proverb – there is no point crying over spilt milk, I believe this is what investors should be also doing. Now we cannot undo of past but take some corrective measures to cover up losses and also go for gain.

Firstly market never went so fast and quick (2004 to 2007) and one doubts history will not repeat so quickly at least in coming decade.  Knowing this if I have to take a decision whether to invest in Equity MF schemes or not I will definitely say yes but with some clear cut preconditions.

Whether we should be investing in Equity MF or not today has to be seen in prospective light and not retrospective light which is the mistake which most investor does and at times repents also. So the first question is how much we are positive or negative as far as earnings from Indian Corporates are concerned. If the business growth looks bleak then one has to evaluate how long -1 year, 2 year , 3 year or 5 year or ….. Yes many companies performance have dipped but its not that they are making losses. Most of the Indian corporates have realised the situation and have moderated their cost and revenue structure. So if anyone buying any stock or Equity MF it is at the cost of today and not cost of peak (2007-08) which is at huge discount from that level. Good companies will continue to earn and investors interest will remain from them in stock market and so will be valuation and revaluation at higher level.

When anyone invests in Equity MF , he is indirectly acquiring the shares of the companies which form part of the portfolio so in today’s context more important to be seen is which type of stocks are part of portfolio and if one is comfortable that the companies are all good one so one can expect good returns.

The second aspect is time. Now again since present and near future does not look very good or in other words there seems some uncertainty from domestic (macro perspective, govt perspective) and  global perspective there could be some negative impact in short term but ultimately after every night they is a day, after every storm there is serenity and one believes that even if there will not be bull run of what we have seen in past but returns will start coming once all negatives are fully accounted for and if one believes in natural law of progression then it is bound to happen sooner or later. But still since short term uncertainty exists one has to be sure of 5 year stay.

If you are buying an Equity MF which has a portfolio of good company stocks, which are generating revenue and the fund manager has proven track record then there is not much to worry. So now investors have to be cautious on type of fund. Not all funds can be suggested to go for investment and only proven ones, time tested ones are worthy candidates for investment.

Even if immediate past is haunting us and near future does create some doubt in our mind but again we have to believe one thing that today we are living in materialistic world where we are dependent on certain products, some products are part of life and some we go for it is part of our desire, changed lifestyle and so we can say that these companies will not wither away and stay growing because of demand and so stocks of these companies will find rise in prices in progressive manner and so gets our Equity MF return enhanced.

Investors have to understand VALUE and VALUATION. Valuation is dynamic and determined mostly by market sentiments whereas Value is determined by the actual benefit that company generates. Valuations are cheap and attractive because sentiments are low but value is something which has been created over many years, decades and linked with company’s business, products and large customer base they hold. So VALUE which has been created through efforts of many years or good business performance can never be undone by low valuations. So investors look at value in equity and keep long term faith and you will earn good return.

Again I repeat after every dark night there is a bright sunny day.

Balance between Safety and Growth

We believe 3 things are to be taken care by any individual:-

v  Safety of self and family

v  Safety of money

v  Growth of money

Safeguarding your interest i.e. Safety aspect is more important. Once that is ensured, Growth of your money is the next consideration.

Safety of self and family – Ensure you have adequate Life Cover, Medical Cover and Accident Cover.

 Insurance should be an important part of your savings portfolio. Because in the event of any misfortune, a well-planned life insurance can protect your loved ones from financial difficulties.

As a thumb rule your life cover or term plan should be at least 8 to10 times of your Annual Income or it should be considering your Human Life Value i.e.  Considering the earning potential of future income in remaining =years of your working life.

Secondly it includes health cover which provides cover against major health care expenses in the form of fixed pay outs on hospitalization or a lump sum on diagnosis against some specified critical illnesses.

Lastly safety includes an add-on cover of accidental benefit over a basic policy which pays an additional sum assured to the beneficiary in case of death due to accident.

So it is a humble request, please check your insurance needs on the above basis

Next Safety of your Money: - It simply means that when you require money you get the amount what you want i.e. no loss of capital. It has to be seen in time perspective as one has to be well prepared for expenses which are in near times and one cannot take the risk of any loss. So this is again looked from two perspective (1) Sudden (2) Expected expenses.

Sudden – Any emergency or unexpected need. Choice of investment is Liquid fund or money in SB Account. As far as quantum is concerned it should be 0 – 3 month of monthly expenses. We do not consider it as investment as return is not at a consideration .

Expected Expenses – Two major consideration (1) idea of any planned expenses e.g education fee , wedding cost in family , holiday etc falling within 3 years  (2) dependent on that money to run family expenses if required or say if worse situation arises due to loss of job .Here apart from return safety, income and regularity of cash inflow are major consideration. This just gives mental comfort and makes one tension free even if facing with worst financial distress. The investment suggested is Debt (Income fund / FMP /Fixed Deposit).

Amount in debt fund to be tension free (a thumb rule -- 36 month of monthly expenses apart from any planned expenses. It can go up to 60 month for those who are more conservative but not suggested beyond that as return from equity will always be better than debt after that. )

 An Illustration:

Monthly expenses à	50000	75000	100000	125000	150000	200000
Cash/Liquid (investment )	150000	225000	300000	375000	450000	600000
Debt ( investment )	1800000	2700000	3600000	4500000	5400000	7200000

If you are already done with this then any fresh investment has to see growing.

Growth of Money -- Now anything after taking into account of Debt comfort level part (cash + income) your further investments should be put for growth and that can come only from Equity and related asset class which is PMS, PE, Real Estate Fund etc . Why Equity? Because in longer time duration return from debt is not so high vis a vis return from equity funds. So put your incremental money for investment in Equity MF.  5% of your total investment should be Gold either in ETC or as hard metal or in ornament form and 5 % in Infrastructure (MF or Bond) with 10 year investment horizon. If you have total portfolio in crores then can also look for PE/PMS for still higher return but investment horizon has to be > 5 years.

Pl remember any fresh investment has to be viewed in terms of total investment portfolio you have an incremental investment should go as per above logic and not based of fear or inducement as per current situation. (e.g. – If someone has total investment of say 50 lakh and all in debt and now has some 5 lakh to invest then in today’s situation he will be tempted to invest for debt again whereas he should go for equity mf as he is already in more than required safer zone and need to put his some money for higher return but with long term perspective)

Should I be looking at Indices while investing in Equity Mutual Fund

It has been seen that most investors always look at indices (Sensex and Nifty) in particular when thinking of investing in equity MF schemes. It has been seen if market is falling they refrain to invest and if market is rising they get tempted to invest.

One has to understand that there are two types of equity investors, one who wants to take advantage of stock price movement and other who wants to take advantage of future earnings of a company.

For the first category of investor the best route of making money is open demat account and do trading. They will play on market and price volatility of stock. The rise and fall in prices most of the time are influenced by certain short term factors or immediate impact of certain policy changes or macro economic variables. One has seen sometimes one is not able to understand the reason of rise and fall in stock prices but as we know these things are more or less sentiment driven and at times all logics and rational defies sentiment.

But we as investment advisor are more concerned about the investment decision making of second type of investor. If my objective is to see my wealth growing then one has to ensure that he adopts the surest way to see that happening. Now what is the surest way Sentiment or Fact.

If I know Tata Steel or Infosys or ACC are the companies who have good products, have growing sales and revenue, have good client base i.e. sound business and its performance as a Fact and then going forward one expects things to be good and expects the company to keep earning profits then one is sure that if one own those stocks directly or indirectly they will reap the benefits. In the short term market and prices react to sensitive news and effect is short lived but in long terms it is the future earnings of company that makes the valuation of stocks go up. Mutual fund is a long term wealth creation tool and in no way it can be assessed and analysed by short term market and price movement.

In an equity fund there is a portfolio of various companies. If at all an investor has to see he should see that the portfolio comprises of good companies stock. One way of looking is what is the proportion of large cap, mid cap and small cap in the portfolio. The more the large cap stocks the lesser is the volatility in return because again in long run large cap stocks are those which have been for years, have good business model, proven management, growing sales and profit.

Now you as an investor have to decide in which category you fall. Both have their own pros and cons but you should not get affected by the ups and downs in the equity market in the short term as you have chosen Equity MF as an investment vehicle. One is governed more by technical i.e day to day, intraday price movement whereas the second one is governed by fundamentals of the company i.e earnings and business.

Again we have to understand that in short term when market rises or falls due to any reason one has seen that other sector or companies stock prices also rise or fall in same or different direction from market but an investor is able to spot that but in case of Equity MF he takes the view of market direction which is again a bit irrational. If you look within an Equity MF portfolio some stocks might have fallen, some risen and some unaffected and that is what makes the portfolio movement proof in a big way. In short run the impact of price movement takes more sentiment into account than earnings but as the period of investment is longer earning impact is felt much more and sentiment impact gets slowly reduced.

Last 5 years have been a roller coaster ride as far as Equity MF return is concerned but here also if I take year to year or month to month return I find big swing but if I take a 3 or 5 year view the big swing is missing.

Even while you are reading this article you must be feeling why I am emphasising investment in Equity MF when recent past experience has been bad and not so encouraging news coming from newspaper, magazine at least for a year down the line. To counter your current mindset I will like you to answer yourself : (1) Historically which of the asset class has given best return in the last 5,7 10, 15 years or so, answer is obviously Equity MF is one of them along with gold and real estate (2) what I am looking from my investment, answer is obviously good return (3) if I am looking for good wealth creation some 5, 10, 15 …. years down the line then why I should be getting worried at stock market movement ( 4 ) should I look at debt instead of equity , obvious answer is yes if you plan to keep investment for less than 3 years but if beyond that then you are losing by not having invested in equity. One very common mistake most investors do is that being scared of suffering loss from Equity MF investment they invest in debt fund or bank FD for a 1 or 2 year period and then again put back in same type of product or continue being invested for long in bank FD. For them just see the returns for period beyond 5 years, it is just some percentage above inflation. One feels happy to get 12% bank FD return but they forget to look what has been the inflation at the same time, may be 8-10% so effective return has been 3-4%.

I would love to take any queries or answer any questions pertaining to this article or doubt regarding investment. Pl feel free to contact me at sinha.prakashranjan@gmail.com 

Analyse your Portfolio

Investor should understand the difference between saving and investment. Saving is just keeping aside some portion from income. Whether that money is just kept idle at home or put anywhere is not important. In investment the money saved is put in any financial asset keeping some flow of regular income in mind or ensuring that money grows at a good rate. Investment serves more objective than saving for any investor.

Money saved/invested today is to be used in future for some purpose. Any investor has to balance between emergency need of money, immediate need of money for expenses and distant expenses need of money. Where and how much to invest should be decided keeping time and liquidity requirement in mind. Safety is the most important thing to review your investment portfolio because if you do not get the required amount of money at the time you require it then investment is of no use. But again safety has to be seen more in perspective of time scale. On a time scale one has to be judicious to decide the level from where return from equity asset would take care of safety as well as help the money grow and multiply also. Most investors interpret SAFETY in a wrong way. Whenever they invest they view that particular investment from safety perspective and then tend to do mistake of investing in safer investment like bank deposit etc. Safety should be interpreted as “ I should get the desired amount of money when I want “ or “ I should not get  lesser amount than what was initially invested i.e no loss of capital “.

Analysing Investment Portfolio:

Each investor’s investment should take care of 3 important things  – cash , income and growth. Cash and Income will broadly fall in Debt category and Growth in Equity category. They follow in the order as mentioned. Two major consideration (1) Till what time (2) How much amount.

Cash – Money in bank account / liquid fund. More to meet certain unexpected requirement, emergency need. Only safety is the consideration and return is not the deciding factor. Time and Amount : Generally 3-6 months of regular expenses plus any planned expenses within 6 months.

Income – More to supplement regular expenses. Main consideration – SAFETY i.e when I require money I get at least minimum what I want (DEBT COMFORT LEVEL). So for this portion more than return factor loss of capital is major consideration. Clients here want some return but not at any loss of capital. Investment could be bank deposit, FMP, short term bond fund, fixed deposit. (1) Time (2) Amount.

Consideration before investment: (1) Till what Time: On time scale look after what time duration Equity and given better return that debt. Historical result says for 3 years and more Equity funds have always given better return than debt funds.  Looking at recent experience of investors, some investors may not be so comfortable with 3 years so may be 4 or 5 years could be his comfort level but not beyond 5 years as historically it has never happened that on a 5 year or plus basis debt fund has given more returns than equity. So time scale could be 3 to 5 years for whole debt investment (cash + income) . So money going for income consideration i.e debt could be anywhere between 2.5 years to 4.5 years.

(2) How much amount: Generally again yardstick could be monthly expenses. So investment in debt fund (FD , FMP , Short term Debt Fund ) could be average monthly expenses X time what is chosen by client. If some major other expenses is planned or falling in between that can be added.  Regarding which scheme again 6 to 12 month: FMP / Ultra Short term, 1 to 2 years – FD or FMP or Short Term debt fund.

Growth : Now anything after taking into account of Debt part ( cash + income ) should be put for growth and that can come only from Equity and related asset class which is PMS, PE, Real Estate Fund etc .

(1) Till what Time: This starts from beyond 3 or 5 years and no final time limit

(2) How much Amount: Look at the outstanding total investment of client as on date. After accounting for cash + income part i.e debt rest all should go to equity. On product specific starting from large cap then to diversified / mid cap then to multicap, index fund  to follow after that. Last to follow would be sector fund, Gold ETF and others.

Analyse Investment Portfolio: Monthly Expenses 100000

Debt Comfort Level
Nos of Months		36	48	60
Total monthly  expenses		3600000	4800000	6000000
Total Investment Portfolio Value		10000000	10000000	10000000
Debt		3600000	4800000	6000000
Equity		6400000	5200000	4000000
Debt		3600000	4800000	6000000
Cash/ liquid (3-6 mth mthly expenses )		600000	600000	600000
FD/FMP/Bk Deposit/ ST Debt Fund		3000000	4200000	5400000
Equity		6400000	5200000	4000000
Large Cap	20%	1280000	1040000	800000
Diversified ( Large + Mid )	20%	1280000	1040000	800000
Mid	10%	640000	520000	400000
Multi Cap ( Large+mid+small )	10%	640000	520000	400000
Gold ETF	10%	640000	520000	400000
Infra	10%	640000	520000	400000
Sector	10%	640000	520000	400000
Index	10%	640000	520000	400000
Total Equity Portion	100%	6400000	5200000	4000000

Some factors to be looked into:

On the age side: One has to consider his time left for retirement. So once that is within 3 or 5 years based on above logic money should move from equity to debt.

Historical facts prove that in long term equity is safer than debt and since money grows by 2-3 times more than what invested in debt extra corpus after 3,5,10, 15 years in fact brings more peace of mind and future safety.

Time Period	Fixed Deposit	HDFC Top 200
3 months	7.25%	17.88%
6 months	7.00%	7.37%
1 year	9.00%	-6.43%
3 years	8.75%	29.58%
5 years	9.00%	14.02%
7 years	8.00%	21.24%
10 years	8.75%	28.61%
15 years	9.82%	21.91%