|Tax Planning/Financial Planning||1||1|
By Neel Kamal Agrawal People choose stock market related investments to gain better returns than Fixed Deposits so that their future value of money can beat inflation. Direct investment in stock market is too risky, so they generally invest in Mutual funds. A mutual fund is nothing more than a collection of stocks and/or bonds. That means mutual fund investments are subject to market risk as they, too, are dependent on the stock market and only the percentage of investment in equity can vary from scheme to scheme. Being exposure in equity, selection of the right M/F is also very important to manage risk as compared to the returns generated. Being unaware of the equity market, people generally seek advice of M/F experts or professionals to make such investments. But do we know that mutual fund investments also require correct entry & exit time else our portfolio may turn negative when market make a big turn? So, before choosing any expert or M/F advisor, we should analyze him/her on following expertise level: 1) Analyze (Research): He must be able to analyze your investment objective & will choose the best asset according to your needs like risk/return taking capacity. 2) Invest: An Expert must be able to invest your hard earned money into right M/F after researching a lot of parameters. 3) Rebalance: An expert must be highly qualified & experienced enough to be able to predict future market movement & shuffle your investment from equity to debt and from one sector to another in M/F according to changing market sentiments. In today’s volatile market, Buy & Hold strategy does not hold true, which was the best strategy from 2003-2007. Let’s take an example: For constructing a good house we hire an architect which can take care of all the matters related to construction based on his experience & qualification. For providing us with the best results, that architect must have a team of experienced & qualified civil engineers as well as interior designers. The role of both the profiles is equally important, as a civil engineer may not have thorough knowledge of interior design & a designer may not have a sufficient amount of knowledge about the construction. Both of them work as two wheels which have to move parallel with same speed to ensure a smooth drive. Similarly, while constructing our Financial Home with exposure in mutual funds, we need an expert which is an all rounder in this field or has a team of experts from each field for all purposes. Analysis of your Mutual fund Expert: 1) Stock market is the base of Mutual fund performance so your expert must have good experience as well as qualification of Stock market to generate good profits by rebalancing it. 2) He should have good knowledge & experience of various Mutual fund schemes so that he can suggest the best fund to invest into. 3) He should be well aware about your investment objective as well as your tax benefits from any investment. That means that he should be able to complete your overall financial plan, keeping in mind your investment objective, risk taking capacity, time horizon as well as tax planning matters. Just as selecting the wrong architect can destroy your dreams of a good home, the wrong selection of your mutual fund advisor or expert can also disturb your expected returns from mutual fund investments. Before hiring or choosing your Financial Advisor, just check his score according to weightage as given in the grid below before making your final decision.
Maximum Score = 8 (2+2+1+1+1+1)
It’s your hard earned money. So don’t let others lose it on the sake of market conditions. Always choose a portfolio manager or mutual fund expert which can analyze such funds which have made good returns on investment, irrespective of market conditions & helps you to achieve your financial goals.