Information on anything, yes almost anything is available at our fingertips. We investors are blessed to witness this jet age of information technology. And interestingly, to add further icing to the cake, all this information is available absolutely free.
In the domain of providing financial services and advisory too, the situation is no different. There are host of website hogging to provide information.
While many of you may consider that as a valuable service, have you ever wondered whether that's helping you to add wisdom or it's just pure "information overload"?
In our opinion it is vital that you investors' recognise that wisdom stands at the pinnacle, whereas information is positioned much below (see chart above). And for you to make wise decisions what matters is wisdom.
While investing all of you have relevant questions to ask such as - Where to invest? How much to invest? What should be the investment horizon? etc.; but in order to take a wise investment decision it is vital to assess which resources you tap. This assessment is relevant because for you to take wise investment decisions, you need to tap that resource which provides wisdom rather than just pure information overload, which still keeps you hanging on what to do with your investments.
Today with several investment instruments available, the task of doing prudent investment planning is furthermore difficult, because you are surrounded with host of information around several investment instruments such as stocks, mutual funds, bank FDs, NCDs, corporate bonds, Public Provident Funds (PPF), National Savings Certificate (NSC), etc., but at the end of it you are still wondering whether you have made the right investment decision. Why? - Because there are several people who have been influencing your investment decision, right from your family members, friends, websites, mutual fund distributors, agents, brokers etc - and mind you everyone has their own view, which often adds to confusion.
In order for you to remove this anarchy caused by "information overload", what is required is capturing the pinnacle of wisdom through an investment advisor who provides independent and unbiased financial advice, keeping his vested interests (of commissions) at bay. Never mind if he charges you a separate advisory fee, as long as he can help you capture that pinnacle of wisdom which would assist you to do prudent investment planning.
We are sure that many of you investors in the past have had horrendous experiences with your investments. Let discuss of mutual funds in detail. In the year 2006 and 2007 when the equity markets were on an upswing, there were several New Fund Offers (NFOs) lined up by various mutual fund houses. Several cities were painted with attractive ad campaigns enticing you to invest. Mutual fund distributors / agents / relationship managers too tempted many of you investors to invest in equity mutual funds, giving a favourable picture. But suddenly all these schemes promoted in great gusto lost their charm during the downturn of the equity markets of 2008 and eroded wealth for you investors in a manner that you almost lost confidence of investing even in those mutual funds which have a consistent track record, and those which follow strong investment processes and systems.
Please recognise that with 4000 schemes floating around in the market the task of selecting winning mutual funds is rather complex not only for you, but even your mutual fund distributor / agent / relationship managers. And mind you the exercise of selecting winning mutual funds is much more than just assessing past performance. It is also only exhaustive research which can help you in selecting winning mutual funds -create wealth for you, and not the excitement created by some mutual fund distributors / agents / relationship managers or even the business channels.
While all the mutual fund distributors' / agents / relationship managers claim that they subscribe to research habits, you need to ensure that they consider the following research aspects, and provide independent and an unbiased advice.
Remember: Don't compare apples with oranges.
Remember: Choose a fund with consistent and robust track record across time frames.
Remember: Make sure your fund does not put all its eggs in one basket .
Remember: Prefer a fund with low portfolio turnover ratio as this reduces the risk for you, and also curtails the expense ratio of the fund, as the fund manager engages in Investing and not trading.
Remember: Fund houses should be process-driven and not 'star' fund-manager driven.
Remember: Higher churning not only leads to higher risk, but also higher cost to you investors.
Remember: Invest in a fund with a low expense ratio and stay invested in it for a longer duration.
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.
The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.
Sorry! There are no related views on news for this company/sector.
Last time the smallcap index crossed 19k a big correction followed. Here's what makes it different this time.
A look at what India's top equity mutual funds bought and sold in January 2021.
Do you enjoy reading Tesla and Bitcoin stories? Here's a not so famous small-cap stock to profit from the rise of EVs.
In this video, I'll show you how to get started on the path to daily trading profits.
More
Equitymaster requests your view! Post a comment on "Are you selecting your mutual fund advisor wisely?". Click here!
Comments are moderated by Equitymaster, in accordance with the Terms of Use, and may not appear
on this article until they have been reviewed and deemed appropriate for posting.
In the meantime, you may want to share this article with your friends!