The Hindu Business Line : `MFs, instead of making investing simple, are complicating it'

Investors need to stagger their equity allocations in line with dips in the index in order to create portfolios for the long term, feels Mr Sandeep Parwal, Director of distribution and advisory firm SPA Capital.

He also points to a scenario that is recurring every now and then: A large-scale bearish spell and a recovery that follows equally rapidly.

Excerpts:

Did you see merit in fresh allocations into equity when the market fell more than 800 points over just two days? As a distributor, how do you react to such volatility?

With the Sensex at such a high level, the volatility in the market is being mapped regularly these days in terms of an absolute number as well as a percentage. Though valuations look stretched, liquidity continues to drive up the market.

Retail investors, many of whom have succumbed to volatility in the first quarter and have booked profits since, do not have much participation in equities. However, their money is waiting on the sidelines.

We recommend staggered equity allocations at all the dips on the index for building long term portfolios with diversified equity funds.

As investment advisors, we target to keep an investor's portfolio in line with his long term financial planning. The trick is not to act merely on the basis of short term volatility.

Were investors caught on the wrong foot when the market dipped steeply? Were many of them involved in equity a bit too deeply?

The asset allocation of investors is not unduly inclined towards equities as of now. This is due to a lack of confidence.

They are aware of the risks of taking large equity exposures at high market valuations.

As for speculators, the story is probably different. Large-scale bearish bouts and equally fast recoveries have made people more mature. Domestic retail investors are getting tuned to the idea of the so-called India story too.

The medium-term bullish outlook will make many investors look for entry opportunities, coinciding with steep market falls.

They do not panic easily just because equities have seen sharp declines.

There seems to be a multiplicity of me-too products in the funds space. As an advisor, how do you see this?

MFs were intended to simplify investing but have ended up complicating the same. Increased mobilisation in new fund offers vis-à-vis existing open-end schemes have prompted AMCs to launch similar products.

The deluge of NFOs continues unabatedly. I suggest that open-end funds with proven track records should be considered by investors for building long term portfolios. Investments in NFOs should be done only when there are compelling themes and structures.

Just as MFs caught investors' attention when direct investing got complicated, platforms like fund of funds (FoFs) will catch their fancy sooner than later. Low costs, tax efficiency and convenience with active investment monitoring by independent platforms (resulting in higher post tax returns) will be the driving force.

Do you expect retail participants to really take to FoFs?

Retail investors will find active FoFs attractive and convenient. This will be in line with the developed markets and we should see the arrival of more independent platforms in the country.

Conservative debt investors will also look at such options, especially so in the context of rising current yields.

Options with potential to generate higher returns by active fund allocation with tax efficiency will be welcome.

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