Mutual Funds

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Table of Contents

1 A long overdue gathering

2 Career blues & financial woes

3 In the spirit of mutual interests

4 Tea, biscuits, & some risky business

5 Creativity lingers in those nimble fingers

6 All that glitters is not Gold

7 When nothing’s left, go right

8 Decoding the warning signs

9 Fat Lee’s & timing details, please!

10 Ashwin’s groans & Sid’s goals

11 The aftermath of Ashwin’s chips & the thing about SIPs

12 Are you loansome tonight?

13 Teary eyes, sad goodbyes, & an unexpected surprise

Pearls of WisdomA. Balasubramanian,CEO, Birla Sun Life Asset Management Company

In a career spanning over two decades in Indian mutual funds, A. Balasubramanian, CEO, Birla Sun Life Asset Management Company provides a first-person insider’s account of the industry’s two decade old journey in India

With 2014, the Indian mutual fund industry enters the third decade of its running. 2014 also marks the 22nd year of the SEBI Act, 1992 which saw the beginning of Mutual Fund regulations in India.

Prior to this period, mutual funds were largely dominated by public-sector sponsored mutual funds which offered close-ended products with implicit guaranteed schemes. As the industry faced challenges in bridging the gap between the final outcome on the portfolio return and assured return, it moved towards the NAV system which is linked to the market movement. Mutual fund vehicles therefore became ‘pure pass through’ wherein the risk was fully passed onto the investor.

Since then, the mutual fund industry has evolved with a healthy progression with more and more players joining in from both private, and foreign sponsored mutual funds. The entry of foreign mutual funds was mostly through joint venture partners in India.

This development brought about innovations by way of rich diversity of products across the risk spectrum. These varied from liquid/ money-market funds, to income funds, to products panning across different maturity buckets. The very fact that the industry’s assets under management in this category today represents close to 75% of its overall size reflects the success of the industry.

Similarly, equity schemes too came to be categorized into large-cap, mid-cap and small-cap, with further division into consumption, and infrastructure-based themes. While such funds i.e. thematics delivered mixed returns, diversified equity funds in both large-cap and mid-cap have done quite well in the last 20-year period.

Mutual Funds in India have played a significant role in the development of the capital markets in both, debt and equity. While one may argue that retail investor participation in India is too low in direct equity and debt, mutual funds still remain the largest representative of the Retail Investor in India. While doing so, the Industry has evolved remarkably in terms of transparency.

This is where the regulation comes into play. Mutual fund regulations have evolved most dynamically over the years with the single-most objective of empowering Mutual Fund investors in the form of higher disclosures.

From past to future forward

Today, mutual funds is the only industry where the portfolio disclosure is 100 percent. Regulation ensured that even fund expenses are capped and disclosed. However, like the two sides to a coin, high-level of information disclosure to investors often subjects the industry to public scrutiny both with a positive and negative connotation.

In the journey of the last 20 years, the Indian mutual fund Industry has most outstandingly weathered all storms that have hit the Indian Economy and the Financial Sector or the capital markets in particular. It has been experienced that the aftermath of every turbulence affecting both, the Indian and Global Economy, has seen mutual funds in India emerge as even stronger a platform protecting the hard earned money of investors.

The industry’s growth rate witnessed an exponential high between the years 2004 - 2008. This could be largely attributed to a wave of New Fund Offerings by mutual fund companies which helped the industry expand to a new set of Investors. However, the US subprime crisis and collapse of few large Institutions in the US in 2009, had the Indian Regulator become even further protective of Indian Investors. This was around when SEBI abolished entry load, an age old system in the Mutual Fund industry both in India and overseas.

While the Industry found this unique, it however remained one of the most under-penetrated industries compared to say, the mutual fund industry in the US. It however adapted to this change in the business model very quickly. The distribution community who were primarily doing the job of advising investors too did not have much choice but to adapt to the new model.

This was when the concept of advisory fees for financial advisors was born. As consumers pay fees to a Doctor or to a Legal Advisor for counsel, there was a sense of realization that the service provided by financial advisors should also be acknowledged with an advisory fee. After all, financial advisors manage the hard earned money of investors counseling them how it can be most efficiently allocated to meet the investor’s financial goals.

One has to accept that any change reasonably different from what the industry has been accustomed to, would take some time to settle down and receive acceptance as the new normal. While it took some time for the new regime to percolate, the industry too along with the help of SEBI and AMFI mobilized to examine various avenues of growth.

In the last two years, the industry on its own, brought in more discipline to protect the interest of Investors. One such measure was the introduction of daily valuation of fixed income securities across mutual fund debt schemes. This step not only brought in high level of uniformity across all mutual fund players, but it was also a move unique to India, as we are the only ones to follow this in the world. This lead taken by the mutual fund industry, set the trend for others in the Banking and Financial Services sector such as Banks and insurance companies to follow mutual fund practices on the debt securities valuation. SEBI too set up a Mutual Fund Advisory Council to look at various options through which the industry can grow.

From past to future forward

One such move was in segmenting the nation into two distinct categories - Top15 and B15 cities, another in recommending 2 bps towards the creation of investor awareness and education for mutual funds. In all probability a game changer, this enabled increased focus beyond Top 15 cities to expand the retail base while providing mutual fund players the beginning of a method to approach pockets of retail investors across India in an organized manner.

The retail penetration in India has been phenomenal for the telecom industry. Despite its longer vintage compared to the telecom sector, the Indian Mutual Fund industry remains with less than 2 crore investors. While it is in a nascent stage when we compare the potential versus current investor base, mutual funds is one of the most matured industry for investors to put their hard earned money. While doing so, it is equally important to have the discipline of investing in various assets classes of mutual fund with a clear goal in mind rather than using mutual funds as one of the means of speculating.

Indian mutual funds offer investors the highest level of transparency which should not in turn, be used by investors to reject their investment. At a time when Unregulated Entities such as unscrupulous promoters, Ponzi schemes or Plantation companies among others, lure even the savviest of investors with the promise of unbelievable returns, the safety of the transparency provided by mutual funds comes attested by an extremely vigilant regulator. Investors must at all times be extremely wary of any investments in unregulated entities.

Mutual Funds are clearly the best proven vehicle to provide investors meet their financial goal. Given the industry’s steadfastness and perseverance of the past two decades, we believe that the way ahead will be substantially better. Recently, there have been discussions on how the mutual fund industry can provide solutions to all types of age investors to meet their Retirement Goals. This is one of the successful models that contributed to the growth of mutual funds in the US. If this receives clearance in India as well, we may probably witness one of the fastest pace of growth in the coming decade.

To conclude, I would like to leave you with some thoughts from Warren Buffett. Warren said, “Every tomorrow has been uncertain. Someone’s sitting in the shade today because someone planted a tree a long time ago. Just because an idea has not panned out yet doesn’t mean that it’s dead in the water. Plant those seeds.”

And remember, “You can only live life forward," Wishing you a very happy and prosperous 2014!

A long overdue gathering1

It was a rainy Friday afternoon when Vivaan, Kabir, Sid, and Ashwin arrived together under tworoomy umbrellas (two huddled under each), and rang the old-fashioned doorbell of Mr. Sen’s house. All four were the classic case of childhood friends – those that went to kindergarten together, then to junior school, high school, and even college, having seen each other at their best and worst alike. Living and growing up together in the same neighbourhood, they were as good as family; all their free time was spent in each other’s company, and at each other’s houses (for breakfast, lunch, dinner, and the very frequent sleepover as well). Thick as thieves, they were, and extremely protective and (and though they’d hate to admit it) possessive about each her. In other words, the four lads were inseparable, and considered themselves brothers in arms.

However, as the years rolled by, and as they graduated from college, each went his separate way – Kabir and Sid stuck around and got themselves blue-collar jobs in their locality, while Vivaanand Ashwin proceeded to earn professional degrees, moving out of the country and working plush white-collar jobs at large MNCs. And even though they vowed to the other to keep in touch throughout, no matter where they went, what they achieved, and what they did, time wasn’t that kind to them. Their communication over the years became more and more sporadic, ceasing altogether of late. Of late, up until that phone call, that is. It was that unexpected, yet welcome call from this obviously important Mr. Sen that got them to regroup once again, after almost 12 years of separation.

Now about Mr. Sen, the mysterious force that seemed to get all four – Vivaan, Kabir, Sid, and Ashwin – to reunite. Mr. Sen was no wizard or genie. He was in fact their neighbourhood tutor, and their most beloved one at that. Sounds pretty banal and basic, right? However, he was no ordinary tutor. He’d been with them, teaching and guiding them right from their junior school days. He knew them inside out, and had always been there for them – even outside of study-related matters. He was their go-to guy – for studies, knowledge, advice, retreat, guidance, life lessons, and even just for idle chatter when they needed a listening ear.

Mr. Sen, though evidently greying and old now, had aged gracefully over the years, and still possessed a wealth of knowledge. His phone call to them wasn’t a cry for help, nor was it motivated by any selfish purpose; but instead just a wanting to relive the good old days – call it an old man’s response to a bout of nostalgia. He’d called them each individually (having acquired their contact numbers from family members, who were equally fond of him), and invited them to a lunch. And being the father figure that he was to them, they all dropped their work without so

A long overdue gathering

much as batting an eyelid, and gathered together to go back home to greet him; Vivaan and Ashwin having caught the first flight out of where their respective jobs that taken them.

On opening the door, Mr. Sen was pounced upon by his four students, all ecstatic at seeing him after all those long years apart. “Mr. Sen, you look like you haven’t aged a day,” said Ashwin, grinning from ear to ear. “Oh, Ashwin, you needn’t butter Mr. Sen up now – you’ve not got marks at stake, you old nerd,” replied Sid in jest. “Never mind those two and their nonsense,” said Kabir, as he swung his arm around Mr. Sen’s shoulder, and walked him into his home. “It’s good to see you lads, too! And about that whole ageing business there – well, I don’t know about me, but you boys have definitely aged,” came Mr. Sen’s witty, sarcastic retort, as Ashwin and Sid blushed.

Mr. Sen led them into his living room, where he had laid out drinks and refreshments pre-lunch. As they ate and drank, conversation picked up, just like the old days. “So, Mr. Sen, how have you been? It’s been years, and your place seems exactly as we left it all those years back – books strewn all over the place, and what not,” enquired Vivaan, once the hugs and pleasantries were dealt with. “Well, my dear boy, you all may have moved on to bigger and better things, but for me, living in this humble town, not much has changed – least of all, my home,” replied Mr. Sen. He continued, “I quit tutoring a couple of years back, because both my age and health wouldn’t permit it, and have taken to reading even more voraciously since.” “Ah, Mr. Sen, still at his books eh! I wish we were half the bookworm you are when in school,” said Vivaan. “Well, I’ll be damned – that library of yours seems to have swollen to over twice its size, Mr. Sen!” came Ashwin’sstunned reply, as he glanced over at Mr. Sen’s library niche in the wall, where books seemed to be jostling with the ones beside, over, and in front of them, for want of an iota of space.

“Yes, you could say I’ve become older and wiser, Ashwin,” laughed Mr. Sen, and the others laughed with him. They were all amazed at how Mr. Sen had managed to retain his jolly, humorous self through the passage of the years. “Let’s make our way to the table for some lunch, shall we? And while we’re at it, we can catch up some more. I really called you all over because it’s been forever, and I wanted to know what my four favourite musketeers have been up to – aside from completely forgetting about my existence, of course,” winked Mr. Sen, as he tottered into the kitchen to go get grub ready. The boys, all evidently shamefaced, had no appropriate response to that. They looked at each other ashamedly, and their eyes sadly followed Mr. Sen as he ambled into the kitchen to get things ready. In that one sentence of his, they realised how lonely Mr. Sen had been, and to think that it was something in which they had a part to play, left them feeling

A long overdue gathering

devastated. While Kabir and Sid accompanied Mr. Sen to the kitchen to help him get things ready, Vivaan and Ashwin stayed back and took a stroll around that familiar house.

Looking at the photos, the furniture, the antiquities, the upholstery, and all the other little oddities that they remembered being around as children, Vivaan and Ashwin felt a surge of nostalgia and both shed a silent tear thinking of days gone by. As their wandering eyes strayed around, they pictured themselves as children, studying at that table, watching that television set, eating at that table on those very plates with those very spoons and forks, lying on that very couch, and hiding behind that very cabinet when playing hide and seek. Sudden realisation dawned on the two that while the world had changed for them, that it had been just the very same for Mr. Sen. That pang of remorse was interrupted when Kabir and Sid walked out of the kitchen with Mr. Sen at their heels, carrying the pots and pans of sumptuous food, the aromas of which suffused the room with a feel-good factor. “Now, now quit being so formal, and have a seat this instant,” commanded Mr. Sen, and the boys arranged themselves around the table in the same fashion they had as when they were young and restless. Mr. Sen, too, took up his usual position, on his steadfast wooden, lightly cushioned grandfather chair that had weathered much in the same fashion as he. Before digging in, the four friends all looked at one another, and Vivaan, echoing the sentiment of his three compatriots said, “Mr. Sen, we’re terribly sorry for not having kept in touch. We feel downright awful about it, and cannot apologise enough. The thing is, we’ve all been so caught up in our respective lives – and I don’t mean for that to be any kind of justification or excuse whatsoever – that we haven’t really given thought to much else – least of all those we left behind. You, most importantly.” Mr. Sen, clearly moved by this, took Vivaan’s hand, and replied, “I bear no ill will towards any of you boys. I have always thought of all of you as my own, and know that each of you has always been in my thoughts. I was young too, once, so I know how things can get; I know things change, and I know certain aspects of life get left behind, unintentional though it may be. Now, don’t be so disheartened; I’m still here, as are all of you, and we must now make up for the precious time we’ve lost out on. And the best way to do that is with food in our bellies, so please, go ahead and help yourselves.”

A long overdue gathering

Career blues &financial woes2

And so, the party of five ate, drank, and made merry well into late afternoon. They chatted tillthey were practically all out of breath, and moved lazily to the living room, plonking themselves on the cozy sofas and couches surrounding the fireplace. As they lazed around, Mr. Sen went back into the kitchen, tinkered around a little, and came back out with a pot of steaming tea, followed by a tray of jam biscuits. As the boys sat lounging, reliving their old days at Mr. Sen’s, and reminiscing about how they’d always try to shun their homework and all other mischievous antics, Mr. Sen enquired how they were all doing presently.

In truth, none of them wanted to discuss work, and it was only when Mr. Sen asked that all suddenly became aware of an uncomfortable undercurrent – something of a white elephant in the room. In reality, Vivaan and Ashwin had done far better for themselves than Kabir and Sid, but there was still something unsettling in each of their lives; and none of them were in a mood to admit it. Mr. Sen had been around them long enough to know that something was troubling each of them, even though they tried their hardest to not show it outwardly, and burden him.

“So, how are you boys doing at work, then? I’ve heard about your pregnant wife, Sid; and about your engagement, Vivaan,” said Mr. Sen, as he smiled in their direction. “Yes, Mr. Sen, I’m happily engaged, and soon to be married, and you’d better make it for the wedding, which will be happening in town,” replied Vivaan. “Oh yes, Mr. Sen, Aarti’s all of 5 months pregnant and we’re stoked about our little bundle of joy,” came Sid’s response.

But for a man as wise and learned as Mr. Sen, it wasn’t difficult to pick up on the hesitant responses that were fraught with much-subdued anxiety. Suffice to say, Mr. Sen was no old fool. “How about we dispense with these formalities and you boys just tell me what’s really going on,” Mr. Sen replied, as the rest smiled rather coyly.

“So come on, then. Let’s hear it. Sid, you go first. Tell me what’s on your mind son – don’t be so tight; it’s me. Go on, talk to me about what’s bothering you.” With much reluctance, Sid managed to stutter out the following, “Well, Mr. Sen, as excited as I am about Aarti’s pregnancy, I am equally worried about our future. You see, even though I have a respectable, well-paying job, I’m not particularly financially what they call ‘well-to-do’.”

The others were about to interject and dismiss the issue, thinking it too grave and out-of-scene, when Mr. Sen stayed them with the raising of his hand. “Continue, Sid,” he said, and Sid continued.

“The thing is, I was to be due for a promotion in the next couple of months, and both Aarti and I

Career blues & financial woes

were thrilled at the prospect of me getting a healthy raise, if not for anything but the sake of our child. But, just 4 days ago, we were informed about the company’s decision to stall promotions for some time. As if that wasn’t enough, there’s the added woe of rising prices of close to everything today. And this promotion was the only way I could have multiplied my savings, which is currently lying like a sitting duck in my humble savings account, and provided for my wife and child a better life. You must understand that I haven’t told Aarti about this as yet, because I don’t want her worrying any more than she already is. But, we don’t have anyone who can guide us financially, and the weight of the future is just bogging me down. Oh, it’s just a whole lot to offload onto you, and I’m terribly sorry for this tirade, Mr. Sen. I didn’t mean to...” and he trailed off, lost in thought.

Mr. Sen walked up to Sid, and took up a seat beside him. Laying his hand on his shoulder, he said, “Sid, you’re stronger than that. I thank you for opening up, and I’m always here to offer you advice and guide you, as I always have been, come what may. Know that this promotion is not going to make or break you. Upsets are a natural part of life, and you’ve got to find another solution to your problems – there’s never just only one. All you have to do is look hard enough, or just ask.”

“Not to interrupt, Mr. Sen, but the thing is, is that this promotion could have done wonders for my rather sedate, insipid financial life. Not to say matters are so bad that I find it difficult to get by on a daily basis, but you know,” continued Sid, “I just lack that feeling of confidence when it comes to my finances. I want to feel financially confident, so that it resonates, and gives Aarti a positive vibe – she deserves it. I see some of my colleagues at work, and they walk around with their head held high, discussing the latest stock market trends and what not. I just overhear these conversations and feel instantly dejected for my thorough lack of knowledge in these financial fields. And so, given that I’m quite bereft of knowledge in those spheres, I thought this promotion and a good hike in salary would be just the thing I needed.”

“You see, my boy, a promotion isn’t your only gateway to multiplying your money. It’s all about perspective. I fully comprehend the essence of what you’re saying, and I want you to know that being financially confident is a state of mind – that if you will it and work towards it in full earnest, it is possible. I’m going to offer you a feasible solution to this problem, provided you’ve got the time, patience, and willingness to hear me out. This solution could lead you on to the road of ultimate financial freedom – corny as it sounds. So, keep an open mind for me while at it, will you?” questioned Mr. Sen.

“Oh, most certainly,” came Sid’s slightly upbeat reply. All the others sat rapt with attention as Mr.

Career blues & financial woes

Sen proceeded to dominate the conversation, sharing his trove of knowledge with not just Sid, but with the rest of them in some way as well. “Tell me Sid, what do you know about investing? I assume you have invested?” enquired Mr. Sen. “Well, just in Gold, really. I have a few fragmented investments elsewhere, too, but I’m no pro to be honest. Besides, I handle it all myself, and take my decisions based on what pals at work tell me and what I read in the papers,” replied Sid, earnestly. “Have you heard of any other investment avenues aside from gold,” probed Mr. Sen, as he observed Sid at the crossroads of this dilemma of his. “Barring Gold, I’ve heard of Real Estate, Bonds, and Equities as lucrative investment avenues, Mr. Sen. I haven’t heard of everyday Joe’s like me, at my age, investing in these seemingly high-end investment avenues, you know?” replied Sid, a tad embarrassed.

“Hmm. So you haven’t explored the Mutual Funds hemisphere then, have you?” asked Mr. Sen, with a smirk on his face. “Well, I have, but I’ve always thought it too advanced a concept for me, and hence shrugged it aside. Why? Do they work?” asked Sid, perplexed. “Do they work?” chuckled Mr. Sen, “why, mutual funds are just the solution to your problem here, Sid,” came Mr. Sen’s rapid fire, excited response. “While you may think that labelling gold, equities, and real estate ‘elitist’ might sound asinine on your part, you’re actually pretty accurate about that. The thing with those investments is that they require you to contribute massive sums of your hard-earned, even harder-saved precious money, and this money tends to be locked up for a long time. So, you just have to play the waiting game, and hope that in the end – at some future point – you will reap the benefits. With mutual funds, it’s quite different. You can start small – as smallas Rs. 500 or Rs. 1,000. So, yes, mutual funds are definitely the way to go for you, Sid.”

Sid, relived at not having been flogged for his ‘elitist’ comment, lent a keen listening ear to Mr. Sen, but somewhere within, still felt a great deal of uncertainty about the whole thing. Scepticism abounded as he mused to himself, “Starting with as little as Rs. 500 or Rs. 1000? Too good to be true, perhaps?” Mr. Sen, observing him in this pensive state, made up his mind then to hash this entire mutual funds matter out with Sid, so he could eventually shed his cape of financial fear, don his hat of financial confidence, and strut down the path of life feeling financially liberated.

Takeaways

• Being financially confident and independent is a state of mind

• Investment avenues like gold, fixed deposits, and real estate require a large amount of money

• With mutual funds, you can start with as small as Rs. 500 or Rs. 1,000.

Career blues & financial woes

In the spirit ofmutual interests3

“You know, Sid, you’re not the only one that’s sceptical about mutual funds. I’ve had quite a handful of my ex-students probe me about the wonders of mutual funds, and if it is in fact a worthwhile investment avenue. A lot of them are financially hesitant, just like you. And I tell them the same thing I’m telling you,” said Mr. Sen. “I’m sure this may come across as rather horrible of me, Mr. Sen, but I’m sure glad I’m not the only one out there that’s this financially inept, if you could call it that. If you have the time, Mr. Sen, could you tell me all about mutual funds, right from scratch?” “Well, I suppose I could put aside my Socrates for today. I’ve been high on philosophy this last month. I guess I’m at that stage in my life where philosophy appeals to me, oldie that I am. But you owe me a book or two in return for this sacrifice,” came Mr. Sen’s quick-witted response, evoking a hearty laugh from all four lads.

“So Sid, let me explain to you, first and foremost, what mutual funds are. To put it simply, mutual funds are collective investment vehicles, wherein multiple investors like you come together and collectively pool their money into a mutual fund scheme, with a mandate to invest, usually by an expert – also commonly referred to as a Fund Manager – for a pre-determined fee.” Mr. Sen paused, and continued, “If any of this flies above your head at any point, Sid, do let me know, so I can break it down for you, and explain it to you as best I can.” Sid nodded politely, and Mr. Sen continued, “Yes, so, as I was saying, this money is invested as per the particular scheme mandate, by professional fund managers, into various underlying assets, which determine the performance of the scheme, i.e. a gain or a loss. This performance net of fees then goes back to the investors, like you.” Sid, thoroughly intrigued by how simple the concept was, interjected, “Wow, Mr. Sen, the way you put it, a mutual fund actually seems like a very straightforward, no-frills investment avenue. All this while I’ve been thinking it was some highly risky, complicated financial avenue, and you know the inverse relationship that exists between me and numbers.”

“Don’t we all!” blurted out Kabir, Ashwin, and Vivaan collectively, all with massive grins plastered across their faces. “Yeah, yeah, this was expected, guys. I regretted it the moment I said it,” said Sid in response, smiling himself. “Ignore those lads, Sid,” said Mr. Sen, noticeably grinning himself.

After the lads had composed themselves, Sid got back to the matter at hand, and enquired, “So what’s the deal with these fund managers, Mr. Sen? I mean, why can’t I invest myself?” After musing a while, Mr. Sen responded, “Tell me Sid, why did you pay fees and go to school to learn? You could well have bought the required study material, and learnt it at home yourself. Why pay a tutor or a teacher? You go to school because of that special quality that teachers bring to the

In the spirit of mutual interests

table – because they’ve got the expertise and skill to really make you understand things better. The same logic applies here – fund managers are professionals with a proficiency in the field. A novice like you may be able to understand the broader picture as it concerns mutual funds, but the nuances will evade you; for the simple reason that you aren’t an expert in the field. So, like you pay a fee to the school to avail of the services of qualified teachers, you pay a fee to professional fund managers to manage your mutual fund money as best they can.” “Well, that’s an excellent analogy, Mr. Sen, I must say,” said Sid, “nonetheless, attractive as a mutual fund seems with these expert, qualified, and highly experienced fund managers, what schemes are these that you talk of? I realise my money is being invested into these supposedly profitable schemes, but could you also may be shed a little light on these schemes that shelter investors’ money?” “A very keen observation, and a good question, Sid,” Mr. Sen responded, “there are actually different types of mutual fund schemes available to invest in underlying asset classes. Let me talk of them individually, and listen carefully now: The first are Equity-Oriented Schemes, wherein a majority of your money is invested in equities; the second are Debt-Oriented Schemes, wherein a majority of your money is invested in debt; the third are Money Market Schemes, wherein a majority of your money is invested in debt, but with a maturity period of under a year; the fourth are Hybrid Schemes, wherein, as the name suggests, your money is invested in a combination of equity and debt; the fifth are Gold Exchange Traded Funds (ETFs), wherein a majority of your money is invested in gold; the sixth are ELSS Schemes, which are nothing but equity schemes with a 3-year lock in period and tax benefits; and lastly, there’s Real Estate ETFs, active and successful in countries like the US, but yet to arrive in India.”

“I see,” replied Sid, slowly acclimatizing himself to this magical world of mutual funds. While Sid was taking it all in and making sense of it, Ashwin poured him another cup of tea, and handing it to him said, “Relax, Sid, you look like the weight of the world is on your shoulders. Breathe, have some tea, and take it easy.”

Takeaways

• Mutual funds are collective investment vehicles, wherein multiple investors like you cometogether and collectively pool their money into a mutual fund scheme, with a mandate toinvest, usually by an expert

• There are different types of mutual fund schemes available to invest in:

• Equity-Oriented Schemes

• Debt-Oriented Schemes

In the spirit of mutual interests

• Money Market Schemes

• Hybrid Schemes

• Gold Exchange Traded Funds

• Real Estate ETFs.

In the spirit of mutual interests

Tea, biscuits& some risky business4

All five of them were peacefully sipping on their tea, munching on their biscuits, and listening to the birds chirping in the trees outside in the little garden that Mr. Sen had kept and tended to so dearly, when Sid, seemingly struck by some kind of brainwave, broke the silence with a jumpy, “But what about the risk involved in investing in mutual funds? And how badly is it likely to affect my returns? Surely there’s got to be some kind of risk level or some downside, because right now it’s just sounding way too good to be true. I’m really not that big a risk-taker – I mean, the riskiest thing I’ve probably done is get married, and as all of you will attest to, that took me a good bit of familial goading, too. So, taking financial risks at this juncture, when it’s my family’s well-being at stake, I just don’t know if I’m game for it.”

“Again, Sid, RELAX!” came Ashwin’s concerned response. “Just hear Mr. Sen out; I’m sure he’ll iron out all your worries, if only you’d give yourself a minute to breathe without getting all frantic and frenzied! Won’t you, Mr. Sen?” asked Ashwin, as he looked over at a pensive Mr. Sen. Although Mr. Sen looked like he was in a parallel universe; he was actually very much involved in the present. Putting down his cup and saucer, Mr. Sen put his arm on Ashwin, and looked in Sid’s direction, “Sid, Ashwin’s right, there’s no reason to get so flustered. I’m here to help you.” Sid, evidently embarrassed, took a deep breath and calmed his haywire nerves. Once he’d composed himself, Mr. Sen continued, “You ask about risk and return – two very critical, pertinent points when it comes to mutual funds. The thing about risk and return, in general, for any financial instrument/product, is that they go hand in hand. They’re two sides of the same coin, i.e. if the risk is low, the returns will also be low, and if you’re expecting high returns, then the risk you’ll have to take will also be high.” “So, there’s really nothing like a free lunch, then,” joked Vivaan, as the others joined in the humour. “Indeed there isn’t,” continued Mr. Sen, “the thing about mutual funds is that they invest into underlying assets that are in line with the scheme objective, and thus, the risk you carry is nothing but that of the underlying asset. And it is here that the expertise of the fund manager comes into play. Good fund managers will aim at maximising returns while simultaneously minimising risk.”

“Is there any way I, as an investor, can reduce my risk exposure? Are there any forces under my control by which risk can be minimised, because if so, at least I would have the satisfaction of knowing that I didn’t overlook anything?” questioned Sid. “Yes, Sid, as a matter of fact, you can minimise risk by diversifying your portfolio across various asset classes and products, particularly assets with lower correlation. By this, what I mean is that different asset classes react differently to varying macro-economic conditions. So while gold might be doing well today, it could probably see a reversal in fortunes next week, when equities might have picked up.

Tea, biscuits, & some risky business

Because there’s no way of predicting the volatile market, diversification is the way to go – that way, if one thing doesn’t work in your favour at some particular point, another might.” “There you have it Sid – Don’t put all your eggs in one basket,” said Vivaan, nudging him with his elbow. “To continue, Sid, that was one way of going about being cautious. Another way you can go about reducing your risk exposure is by staying invested for the recommended investment period. Let me explain this to you via an example: Say you’ve invested in a debt fund; now, if the holding period (also called the investment period) therein is more or less similar to the average maturity (the weighted average of maturity for all debt instruments in your portfolio) of the debt fund managed by your fund manager, your returns will at least be the equivalent of your YTM (Yield-to-Maturity, or the weighted average coupon of all debt instruments at the time of investing). Along the same lines, a volatile asset class like equity, risky though it may be, can give high returns if the investment horizon is, say, 5 – 10 years,” responded an erudite Mr. Sen.

As Sid digested this, Mr. Sen, said, “I know I’ve thrown you a curveball here with all these jargonised terms, but again, as I’d said earlier, feel free to let me know if it’s all gotten too much for you.” “Not at all, Mr. Sen. I mean, it is quite a mouthful to swallow in one go, but I’ve always had a healthy appetite,” teased Sid, chowing down on a cream-filled biscuit, “I’ve quite understood all that you’ve said, and I think I’m going to be more of a risk-taker now. Better late than never, like they say, huh?”

Takeaways

• Fund managers will aim at maximising returns while simultaneously minimising risk

• You can minimise risk by diversifying your portfolio across various asset classes and products, particularly assets with lower correlation.

Tea, biscuits, & some risky business

Creativity lingers inthose nimble fingers5

The evening was getting on as the party took a breather, and sipped on what was their third round of tea. Kabir was the first to pierce the stillness and tranquillity, “Mr. Sen, to tell you frankly, I’m quite taken with this whole mutual funds concept. I mean, I’ve always had a somewhat vague idea of it because of my latent interest in finance, but I never really knew the nitty-gritty’s of it. Like Sid, I was always under the illusion it was some kind of ugly financial-guzzling monster, too complicated for me to even try understanding. But now, having heard you explain it so lucidly, I must say it’s been revelatory.” “It most certainly has,” joined in Vivaan and Ashwin. “Well, I’m glad you lads haven’t snoozed as yet, given that none of you were fans of finance. If memory serves, I remember the days when each of you would promptly dart to the door the minute I’d utter the word ‘finance’, and ask you youngsters to take out your finance text books. Oh well, those were the days, and I’m just going to compliment my tea as having had a stellar effect on you, keeping you fellows awake, and more importantly, attentive, this long,” chuckled Mr. Sen. Following a few minutes of laughter, Vivaan pointed out, “Well, Mr. Sen, your tea has always been exceptional, but equal credit to your way of narration.”

Mr. Sen waddled back into the kitchen to refill the empty teapot, and Vivaan and Ashwin went in after him to lend a helping hand. As the three pottered around in the kitchen, the clinking and clanking of utensils disturbed Sid’s momentary slumber. Kabir and Sid had remained back in the hall, taking the opportunity to relax their minds a bit. As the cuckoo clock (what’s an old man’s house without the faithful cuckoo clock?) struck 5, the kitchen party waltzed back into the living room with replenishment aplenty. Having taken their designated seats once again, the boys continued feeding and watering themselves, while Mr. Sen slouched in his grandfather chair, observing them keenly, and thinking of days gone by when he’d be chasing them around the living room, trying to get them seated for their tuition. His flashback was brought to a grinding halt by Sid, who having abruptly put his cup and saucer down onto the table, spluttered from his crumb-lined mouth, “Hey, Mr. Sen, think you could explain this process to us with a visual? You know, if you could graphically represent this, it’d be super! Believe it or not, I’m still a child at heart; and like the good old days when your caricatures and doodles were what really encouraged me to learn, I still believe that today, your creativity by way of a graphical representation would greatly help me – us, rather – fully understand the scope and workings of this concept.” The other lads’ faces lit up at this for they had all always been ardent fans of Mr. Sen’s cartoonist side, and all nodded in unison. “No pressures, Mr. Sen. We really don’t want to inconvenience or stretch you, but in all selfishness, we’d love to see one of your financial sketches again. After all, it was your sketches and doodles that spurred us on to really understand concepts, rather than just

Creativity lingers in those nimble fingers

learn by rote,” said Kabir, with an earnest, yet imploring look at Mr. Sen. All this while, Mr. Sen hadn’t said a word. The four friends exchanged rapid glances, afraid that they’d overstepped their boundaries. “I’m so sorry, Mr. Sen. I think I’ve just got carried away, and run my mouth. Really, it’s bad enough that we’ve troubled you with lunch and tea preparations, and now dumping my financial woes on you – I understand that it’s unfair. So, just scrap that; it was never said, okay?” said Sid, visibly ashamed. “So, Mr. Sen, how’s the garden-sprucing coming along? What have you been growing of late?” asked Vivaan, in an effort to digress, and completely divert Mr. Sen’s attention.

While the boys were all in a tizzy over this, Mr. Sen calmly got up, steadied himself, and without a word, hobbled into his bedroom. The tension in the living room was so thick at that point that a knife could have sliced it clean. The boys, worried about the consequences of having run their mouths, deliberated over how to go about handling the situation. While they frantically debated, Mr. Sen reappeared from the confines of his bedroom, sketch pens and paper in hand. Seated on his grandfather chair, he drew the table near to him, and set down his stationery. Perceptibly baffled, Sid was quick to say, “Oh no, Mr. Sen, there’s really no need. I was being thoroughly unreasonable, and I apologise profusely. Let’s talk about that garden of yours, huh?” Mr. Sen, having arranged his equipment neatly on the table, looked up at the four worry-stricken faces of his pupils, and let out a jolly laugh. “Well now look at you fellows; your faces are absolutely white with terror! What’s the matter? Did I scare you so? I’ve never seen such expressions on your faces even as young lads when you mischievous brats would fare poorly in my tests! I look like I’ve put the fear of the Devil in you,” said Mr. Sen. He continued, “Inconvenienced me? Oh please! I can’t tell you how thrilled I am, Sid, and all of you, for taking such an active interest in these matters. And I’m even more thrilled that you remember my drawings! This old fool is a happy man, today. Now, take it easy, and let’s get right to it, shall we?”

As the boys heaved a sigh of relief, Mr. Sen picked up his sketch pen, and a wave of nostalgia hit all present, as they looked on eagerly.

(Illustration)

“And that’s the process lads – as easy as that,” said Mr. Sen, setting down his sketch pen. Aside from that brilliant illustration, the four lads were amazed at Mr. Sen’s deftness. His skill hadn’t changed one bit, and his years hadn’t wavered his steady, artful hand. Wonderstruck, Sid’s jaw managed to relocate itself, as he exclaimed, “WOW! I mean, this is top-drawer stuff Mr. Sen. I can’t begin to tell you how this sketch of yours has simplified the mutual fund concept for me. I

Creativity lingers in those nimble fingers

guess what I’m trying to say is that I’m blown away. Thank you!”

Beaming, Mr. Sen replied, “Au contraire, Sid, I’m thankful to you. You don’t know what kind of joy you boys coming here and helping me relive my professor days has brought me. You might think it’s a burden, but it’s really what I needed. So, don’t stay that tongue, and let’s hear what other doubts cloud your mind when it comes to mutual funds.”

Creativity lingers in those nimble fingers

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All that glittersis not Gold 6

Still awestruck and unable to tear themselves away from Mr. Sen’s brilliant graphical representation, the boys mumbled to themselves unintelligibly, till Sid, curious as George, ventured once again, “Well, Mr. Sen, I’ve heard that gold is an excellent investment avenue from my colleagues at work. They all insist I invest in the precious commodity, and that’s just what I’ve done. Besides, gold appreciates well over time, and it’s a solid backup. Why then would I want to switch over to mutual funds, beneficial though they may be?” enquired Sid. At this juncture, Vivaan and Ashwin nodded approvingly in Sid’s direction, seemingly agreeing with his train of thought. “Gold is undoubtedly a great investment avenue, but you cannot compare it to mutual funds. It’s apples and oranges,” interjected Kabir, who had a decent bit of knowledge on mutual funds having worked briefly at a mutual fund firm.

“Kabir is right,” came Mr. Sen’s austere reply, “let me put it to you like this, dear lad. Gold and mutual funds are two separate asset classes altogether, neither of which is in competition with the other. Mutual funds simply provide a medium through which you can gain exposure to gold as an asset class – gold ETFs or gold funds. As an asset class, gold is a preserve or store of value as you rightly noted; and hence, most see it as a way to beat inflation – not so much as a tool to create wealth. Remember also that since gold is a commodity, demand-supply factors are constantly at work, with a great bearing on its price, which is bound to fluctuate.” Kabir, keenly listening on, added yet another tidbit, “You see, Sid, in the last decade, gold actually stagnated for a long while. Hence, as Mr. Sen has pointed out, it cannot be relied upon as a constructive avenue for wealth creation per se.”

Mr. Sen, evidently pleased that his student was aware of such detail, furthered, “Ideally, gold should be treated as an alternate class, and should be limited to a certain percent of your portfolio. This exposure can however be increased or decreased based on your need and circumstances. So, say you and Aarti have a beautiful baby girl, who one day gets married – you’re probably going to want to shower her with gold then, and so can increase your exposure to it at such times.” Vivaan and Ashwin, thoroughly intrigued, put in, “So, Mr. Sen, you’re basically saying that gold isn’t a go-to investment asset class if you’re looking to create wealth for yourself, right?” “That would be correct, boys.”

“So, would gold ETFs be a wiser option then? I’ve heard a few colleagues at work discuss gold ETFs, and I’ve always wondered, but never asked, because I knew I wouldn’t have done anything given my inherent fear,” asked a thoroughly curious Sid. “Yes, Sid, gold ETFs score major brownie points over gold coins and gold jewellery, and for not one, but four reasons:

All that glitters is not Gold

1. It’s potentially cheaper to have price exposure to gold prices, as compared to other availableavenues. Gold ETFs, unlike gold jewellery have no margins, and hence, offer the lowestexposure to gold.

2. You don’t need to worry about storage and security issues

3. The pricing is completely transparent, as it is traded on the stock exchange. Hence, there’s noroom for additional charges like making charges/packaging, as is the case with goldcoins/jewellery.

4. As a retail investor, it’s ideal, because the minimum lot size you’ll need to trade in is one unitof the gold ETF, which is the approximately equal to one gram of gold. So, say you have Rs.5,000 that you would like to invest in gold. If you’re buying a gold bar/biscuit/jewellery, theminimum you would have to purchase would be 10gms, the price of which would far exceedthe Rs. 3,000 you have at your disposal. Conversely, with gold ETFs, you can purchase even that1gm (which your Rs. 5,000 might likely cover), and thus ETFs are a more feasible option.”

Turning back to Sid, Mr. Sen finally put in, “Sid, at the end of the day, gold is not tax-efficient as it is treated in the category of debt for the purpose of tax calculations. On the other hand, equity mutual funds are far more tax-efficient, and though risky, are a great avenue for wealth creation and multiplication. So, don’t look at gold as the be all and end all of your investments; move out of your comfort zone, and choose to invest in mutual funds. Not only will competent fund managers be managing your money carefully and adequately for you, but you’ll also be genuinely creating wealth in the true sense of the word. And that wealth can ultimately be used to provide your family a better life.”

Takeaways

• Gold is a preserve or store of value; and hence, most see it as a way to beat inflation – not somuch as a tool to create wealth

• Gold should be treated as an alternate class, and should be limited to a certain percent of yourportfolio

• Gold is a commodity, and demand-supply factors are constantly at work, with a great bearingon its price, which is bound to fluctuate

• Mutual funds can provide a medium through which you can gain exposure to gold as an assetclass – gold ETFs or gold funds

• Gold is not tax-efficient as it is treated in the category of debt for the purpose of tax calculations.

All that glitters is not Gold

When nothing’s left,go right7

As dusk began to set in, so did lethargy. Vivaan and Ashwin were visibly in snooze mode, and Kabir had stepped out to buy some refreshments, so they didn’t land up emptying all of Mr. Sen’s kitchen cabinets. Sid and Mr. Sen were lively as ever, and while the others yawned and stretched, Sid, now completely consumed in this conversation, put forth a question to Mr. Sen, “Mr. Sen, now that you’ve convinced me about mutual funds being a more viable investment option than gold, how exactly do I go about picking the right fund? Is there anything like picking the right fund, or can I put my money into any trustworthy fund?” “Sid, that’s an interesting question you’ve posed to me there. To state it plainly, picking the right fund for yourself is much like picking out the right anything for yourself in life – it involves knowing yourself, your life goals, your risk tolerance, your attitude to investments, and the like. Scheme performance, however, is a secondary factor. And clichéd as it may sound it is true,” responded Mr. Sen. “As regards mutual funds, the starting point when selecting the right fund/scheme is knowing your risk tolerance and life goals. Furthermore, you’ve got to look at it from a personal finance point-of-view, i.e. the role that mutual fund schemes play in your personal finance sphere.

“All things being equal, mutual funds will always be a far less risky option when compared to self-investing, for the sole reason of the expertise and diversification a qualified fund manager brings to the table. And lastly, it’s important that you remember that most of the risk or return in your portfolio is attributable to asset allocation, not so much your selection of a mutual fund scheme. Hence, I’d advise that you align your asset allocation with your goals and risk profile, if you really want to optimise your returns.”

Sid nodded in agreement, as the three other lads stirred from their snooze. Kabir returned from his jaunt with ‘three bags full, Sir’, and lazily strode on over to the kitchen to assemble the munchies in the cabinets and get some arranged for the lazy bones lounging on the living room sofas. Mr. Sen thanked Kabir for refilling his dwindling cabinet stock, and the party of five took a break to catch up on old times again. “So about my gardening, Vivaan, that you were so interested in a while back,” sniggered Mr. Sen, “it’s coming along well. I’ve got a patch of strawberries, one of carrots, and another of radishes. My flowerbed is in bloom, and I’m proud as a peacock about that! You guys should stop by tomorrow, and you can try your hand at gardening. I’ve got to do my weeding, anyway, and could use an extra pair, rather extra pairs, of hands. What say?” “We’d love to, Mr. Sen. We know that you’ve always looked at that garden as your baby, and we’d willingly drop by and help you out,” replied Ashwin, who had always fancied and adored Mr. Sen’s lovely garden. “Mr. Sen, suffice to say you’ve got yourself a pair of wonderfully nimble fingers, the likes of which the four of us put together couldn’t match,” said Vivaan,

When nothing’s left, go right

acknowledging Mr. Sen’s hard work, even at his ripe old age of 72.

They went on to discuss the whereabouts and whatabouts of their school professors, most of whom were close friends of Mr. Sen’s, and he told them of how Mr. Gupta, the Math professor, had gone on to become the Principal of their school, and how Mrs. Sharma’s (the Geography professor) son was now a professor in the Junior section of their school. The boys were delighted to receive this information, and it warmed their hearts.

Takeaways

• Picking the right fund involves knowing yourself, your life goals, your risk tolerance, yourattitude to investments, and the like

• Mutual funds is a less risky option when compared to self-investing, for the sole reason of theexpertise and diversification a qualified fund manager brings to the table.

When nothing’s left, go right

Decodingthe warning signs 8

As the evening wore on, bringing memories from bygone years with it, the mutual fund talk seemed to fade into the background. However, after that brief lull in discussion, Sid casually enquired, “Hey, you know how these mutual fund companies always issue a mandatory cautionary warning when advertising? ‘Mutual funds are subject to market risks.’ I’m sure they are, but what does that even mean? I mean, it all seems like smooth sailing throughout, and then they go and flash this warning, which totally nullifies the elated feeling prior to that. Is there really a lot of risk that’s associated with it, or what exactly is the deal?” This was a common concern shared by all the lads, and they were eager to know what that statement really implied. Mr. Sen, discerning their keenness, replied, “Well, Sid, I must say you’re in full swing on this mutual fund bandwagon, and I’m glad!” “Now to address that obscure statement – ‘Mutual funds are subject to market risks.’ As you know, buying a mutual fund scheme for investment purposes carries a certain amount of risk, as we had established earlier. This risk is due to the NAV (Net Asset Value) of the scheme – in layman terms, the price of the scheme – which fluctuates with movements in underlying asset classes.”

“Right. But what about the accompanying statement – ‘Please read the offer document carefully before investing,’ Mr. Sen,” questioned an intrigued Kabir. “Well, that is nothing but the scheme’s offer document. It is essential you read that and understand it before investing in the scheme/fund. Once you’ve read the scheme’s offer document and signed the mutual fund application, it is deemed that you have fully comprehended the underlying risk associated with the investments. In other words, it is akin to the ‘Caveat Emptor’ or ‘Buyer Beware’ principle – as a buyer/investor, you must exercise precaution before investing in a mutual fund scheme. Once your signature’s on that offer document, it means you have fully read and wholly understood the responsibilities and liabilities,” replied Mr. Sen.

“And what if I realise much later that my fund manager was not efficient enough or bungled up somewhere, and that the fund hasn’t given me the returns I was expecting?” asked Sid. “Ah, well I was just getting to that. Well, Sid, in the event that you decide to register a complaint against the scheme, you won’t have much recourse with the regulator or even with the consumer forum, particularly if you’ve signed the application form for the investment. You can, however, always lodge a complaint with SEBI (Securities and Exchange Board of India). But ultimately, that signature of yours carries a lot of weight – so while your fund manager may be majorly responsible, you are equally responsible for not having done due diligence on your part, and plunged into it blindfolded,” replied Mr. Sen. “However, if somehow it is proven that someone had missold the scheme to you, the chances of which are pretty remote, then maybe you stand a

Decoding the warning signs

chance of recovering your investment. Hence, the regulator, i.e. SEBI, wants you to know and understand, from the very outset, the mandates the fund houses display on their various communication and promotion platforms.” He continued, “SEBI has in fact recently started the practice of colour-coding of funds for easier identification of underlying risks. So, brown indicates high risk, yellow indicates medium risk, and blue indicates low risk. It is always better to be cognizant of the risk upfront, rather than it lying hidden and then blowing up in your face at a later, irretractable stage – as is the case with a lot of traditional modes of investment.”

“That reminds me, I’ve heard that a lot of chit funds have got a bad reputation, because the risks are not known upfront, and gullible investors are lured into it,” interjected a smug Kabir, quite pleased at his two paise bit of information. “That’s right, Kabir, and never forget the principle – ‘Risk and return are two sides of the same coin’,” replied Mr. Sen. Taking it further, Mr. Sen said, “In fact, and this may surprise you, even investing in your favourite fixed deposits is quite the same. Essentially, banks and mutual funds do the same thing; the only difference being that the way banks work is not known to us, while mutual fund developments are more transparent, and this transparency sometimes tends to scare us.” “So, what happens with banks, Mr. Sen?” asked a flummoxed Sid. Mr. Sen continued in the same vein, “You see Sid, when a bank offers you 8.5% interest for 3 years on your FD, your underlying investments go into debt instruments, much like any other debt fund, or even closer to home, FMPs (Fixed Maturity Plans). A part of the money is also lent to other investors, and this carries credit risk, i.e. the risk of the investor not paying back the interest, principal, or both. So a lot is dependent on the investors also. Now, the likelihood of most large, well-capitalised banks slipping up is not very large, but that’s not to say slip-ups will never occur – it has happened in Europe.

“With mutual funds, agreed, you are privy to your money’s movements on a daily basis – on some days it does well, and on others, it’s a little disappointing. These highs-and-lows – particularly the lows – tend to surprise the investor sometimes. And then there’s the subsequent hyperventilation, over-exaggeration, and worst-case scenario scenes that result in hasty decisions and grave upsets. However, as noted, such transparency is actually better than the obscurity (more like opaqueness) of a bank investment. And remember – not taking risks is also a risk!”

Sid sat mulling over Mr. Sen’s words, as the others shuffled around nervously. All this talk of risk had rattled them a bit, and Mr. Sen, picking up on this, by and by assuaged their fears, “I can tell that all of you are a bit wound up with all this risk talk. But look, here’s what you’ve got to

Decoding the warning signs

understand – risks are an inevitable part of life. A large part of the responsibility lies with you in being prudent and pragmatic when taking important investment decisions. And that’s why you’ve come to me, isn’t it? Not to boast, but I do pride myself on dispensing sound financial advice. So, cheer up, and don’t let risks keep you tethered to one definite spot. What’s important is knowing the right risks – those worth taking – and proceeding with utmost caution. Now, let’s proceed, shall we? There’s still a good deal to clear out.”

Takeaways

• ‘Mutual funds are subject to market risks’ – refers to the risk due to the NAV (Net Asset Value)of the scheme – which fluctuates with movements in underlying asset classes

• With mutual funds, you are privy to your money’s movements on a daily basis, so there’s agreat deal of transparency

• Not taking a risk is a risk in itself.

Decoding the warning signs

Fat Lee’s &timing details, please!9

Having heard an exhaustive amount on the risks associated with mutual funds, the four friends were sufficiently shaken, but Mr. Sen’s pearls of wisdom towards the end had soothed their nerves to some extent. The clock now struck 7, and the streetlights came on, as the birds flut-tered back into their nests in the trees. Vivaan had picked up Mr. Sen’s crafty sketch on the Mutual Fund concept, and was poring over it with Ashwin, as Kabir and Sid had a brief tete-a-tete on the mutual fund concept – given that the two of them were more in the know-how than the other two, and had displayed a keen interest all along. In the meanwhile, Mr. Sen dialled Fat Lee’s, an excellent little Chinese restaurant down the road that had been around for donkey’s years (and from where he’d often order food for the boys when they were under his tutelage), to order some Chinese grub.

“Well, I’ve placed an order with Fat Lee’s, so dinner should be arriving soon for you hungry wolves. I can see that the mere mention of it has whetted your appetites. Ashwin, stop drooling! I pur-chased that sofa coverlet just last week!” exclaimed Mr. Sen, evoking resounding laughter from all present. “Yeah, Ashwin, control your stomach, you glut. It’s always got the better of you,” winked Vivaan. “If you’re implying that I’m fat, I’ll have you know that I’m a growing man, and what you call ‘pleasantly plump’,” came Ashwin’s humorous retort. “Growing, indeed,” chortled Sid, and the entire party was in splits. “Alright boys, let’s lay off poor Ashwin and his stomach now,” said Mr. Sen, with a gentle smile in Ashwin’s direction, who had somehow managed to curb his drooling.

Post this exciting leg-pulling session, the boys composed themselves, while floating images of chicken lollipops, wantons, hakka noodles, and Kung Pao potatoes clouded their minds. Sid how-ever, was intent on learning the ins-and-outs of mutual funds; and tempting as it was, he man-aged to shove these distracting tempting images out of his mind. “Sorry to burst your bubble, guys, but I’ve got another mutual fund query,” said Sid to an evidently irritated bunch. “The risk-return conundrums aside, say I do decide to go ahead and invest in a mutual fund, Mr. Sen. What would you say is the ideal time to stay invested in a fund? How do I go about planning out my investments in order to make the most of them? How do I take a call on the tenure – when to stay invested and when to redeem? How do I...” he trailed off, rather breathlessly. Amused by Sid’s flurry of thoughts and onslaught of questions, Mr. Sen placed his hand on Sid’s shoulder, and got on with the pith of the matter. “Sid, I would say that the ideal time for investment in a mutual fund depends on the schemes you choose to invest in, as also the time horizon of the goal for which you have invested. To break it down for you, here are recommended time horizons for varied mutual fund schemes:

Fat Lee’s & timing details, please!

“What I’ve outlined are basically broad ballpark figures; the actual recommended investment horizon will be decided basis the underlying scheme and your objective. For this, needless to say, a financial advisor will prove handy. That said, generally speaking, I’d say you should remain invested till such time as there is no urgent need for money or liquidity.”

Sid’s breathlessness and over-eagerness had subsided, and he seemed to be at ease post Mr. Sen’s explanation. “Sorry about that non-stop questioning earlier, Mr. Sen. I really don’t know what’s gotten into me today,” said an embarrassed Sid. “Oh, Sid, well it’s the same thing that gets into you every day,” came Vivaan’s cheeky response, “Don’t bother now, we can tell you’re clearly highly interested – not to mention, invested – in this conversation, if you know what I mean.” Sid, no novice to his friends’ tomfoolery, picked up on the pun, and smiled a wry smile. “Come on now, Vivaan, give Sid a break. I’m impressed at his active interest in this topic, and it’ll behoove you to follow his cue, because it could bode well for you, too,” said Mr. Sen, having invoked the professor within him once more. “I’m sorry, Mr. Sen, I didn’t mean to make light of the situation or anything. I was just teasing,” replied Vivaan, shamefacedly. “No worries, son,” said Mr. Sen, and relapsed into his professor-y Zen state of mind.

Takeaways

• The ideal time for investment in a mutual fund depends on the schemes you choose to investin, as also the time horizon of the goal for which you have invested

• You should remain invested till such time as there is no urgent need for money or liquidity.

Fat Lee’s & timing details, please!

Cash Funds Ultra shortterm funds

Liquid funds

1 day 3 months 1 year 3 years 10 years

1 month 6 months 2 years 5 years

Short termfunds

Monthlyincome plans

(MIPs)

Equity &gold funds

Income &Gift funds

Balancedfunds

Ashwin’s groans & Sid’s goals10

After a while, an agitated Ashwin asked, “My stomach’s growling! Shouldn’t dinner have been here already?” “Christ, Ashwin! It’s only been a half hour since Mr. Sen placed the order. You mind exercising some patience, or would you rather they send across half-cooked food, you greedy dog? Here, munch on these salted wafers in the meanwhile,” replied Kabir, handing the bowl of chips to Vivaan, to pass on to Ashwin. By now, you’ve probably ascertained that Ashwin’s stomach was a bottomless pit, but that was quintessential Ashwin, right from his childhood days. Food had always been his best friend – and any type of food was comfort food for him.

To divert Ashwin’s non-stop food jibber-jabber, Vivaan turned to Sid and asked, “Hey Sid, if I recollect correctly, when we corresponded via e-mail a few months ago, you’d mentioned to me that you were on the lookout for a new place. Was that just a spur of the moment thing, or are you seriously looking?” “Actually, it was a spur of the moment thing then, but since Aarti’s pregnancy, it’s become a serious thing. Earlier, it was about wanting to move out of my parents’ place; now it’s become more of a necessity. I mean, I love my place right now, and having the grandparents around the little one when he/she arrives will undoubtedly be a blessing, but I can’t rely on my parents’ support forever, you know? At some point, I need to move out, live independently, and support my own family. Not that my folks will mind – on the contrary, they’d be more than willing to have us here, and take care of the little bundle, but I just feel a bit iffy about it. Truth be told, they’ve been absolutely stellar parents – always provided for me, been there for me and Aarti in both good and trying times (often even financially), and the best part was that it was completely unconditional. I feel like I’m now at that junction in my life where I need to give back, and so moving out and lessening their burden (although of course, they don’t see it that way at all) is a priority. Besides, my place is no mansion, and with a child on the way, I think there’s no better time to make the transition,” said Sid, rather dejected, and evidently upset. “You look pretty down about this, Sid. I had no idea this was such a troublesome issue for you. I’m sorry to have brought it up at all. Had I known...” Vivaan trailed off. “Oh no, don’t be silly! In fact, you bringing it up has actually strengthened my resolve to set that ball in motion. I’ve been sitting and mulling over this for way too long now. It’s just that I’d ideally love something in this locality, because well, you know, I’ve got my folks here, my place of work is just a 20-minute ride, the neighbourhood is great, and most importantly, I’m so comfortable here. I know life is all about moving out of your comfort zone, but right now, I’m still looking in and around our locality itself. The only glitch is the realty prices – I get a mini heart attack just thinking about it. I’ve actually approached a few banks and enquired about loans, so now it’s just a matter of zoning in on one, and taking that first step, you know?” said Sid, in an attempt to pep himself up.

Ashwin’s groans & Sid’s goals

All this while, Mr. Sen sat quiet and listened intently. “I’m sorry, Mr. Sen, I was just telling Vivaan about my need to buy a place for my family; didn’t mean to ignore you deliberately,” said Sid, realising Mr. Sen hadn’t said a word. “Yes, Mr. Sen, apologies on my behalf, too,” came Vivaan’s reply. “Alright guys, I say it’s time for a game of cards with Mr. Sen – just like old times. What say, Mr. Sen?” said Kabir as he looked approvingly at Mr. Sen. “Cards in a bit, boys,” came Mr. Sen’s sober reply, “right now, I’ve got some unfinished business with Sid still.” Sid, being the frightful sort, recoiled in fear of having done or said something untoward, and sweat beads dotted his lined forehead. “So, from what I’ve heard, you plan on buying a house, right Sid? A house in this locality – to provide a better life for your family, ease the burden on your ageing parents, and to some extent, maybe prove to yourself that you are in fact capable of being financially independent, correct?” A nervous nod in agreement from Sid, and Mr. Sen continued, “You speak of applying for a home loan with a bank, and doing leg work for the same. That’s commendable, really. Most people tend to jump into applying for a loan without so much as weighing their options – the pros and the cons. However, there’s another window open to you that’s currently unseen. Tell me, have you heard about goal-based investing, Sid?”

“I think I’ve read about it a couple of times in the newspaper, Mr. Sen, but I haven’t really paid much attention to it. What does that have to do with buying a home anyway? Or for that matter, what’s it got to do with mutual funds?” enquired Sid, perplexed beyond reason. “Sid, goal-based investing is interlinked with mutual funds. You can actually do goal-based investing with a mutual fund; and with time you’ll be able to predict a certain percentage of returns, accordingly being able to effectively plan investments. So, instead of opting for a loan – which I’m not saying you need to rule out altogether – you have the option of systematic goal-based investing in a mutual fund, with one of the goals being buying yourself a house. Now, if you don’t mind my asking, how urgent is your situation? The way I see it, this is your first child, and you’re still finding your feet so far as your career is concerned. Why rush into buying a home? I understand that it gives you a longer time window to pay off the loan (while you’re young and earning), but wouldn’t it be better to wait a few years maybe? Personally, I think your child will need his/her grandparents, and so will you! Being new parents is no cakewalk, and instead of Aarti having to figure it out alone, wouldn’t it be better if she had your folks helping her out – at least initially?” said a concerned Mr. Sen. “Well, now that you put it that way,” replied Sid, musing, “I never thought of it like that, but it actually does make a good bit of sense. So, say I avoid the home loan for now, and decide to go in for this goal-based investing thing. What am I getting into exactly?”

“Alright, so goal-based investing is a process that helps you plan your investments –you define

Ashwin’s groans & Sid’s goals

your goal, estimate the corpus you will require to fulfil the goal, and the time available to fulfil your goal, and make general assumptions about your investment returns and inflation. Based on these variables, you will be provided with the recommended asset allocation and amount to be invested regularly. So, if your goal is buying a house, you will need to set a time horizon, estimate the amount you will need to invest over that period of time, and make certain assumptions on your returns and inflation based on your discretion. This will then help you allocate your funds in concordance with your goal. If you’ve got multiple goals, you will have to invest multiple amounts to achieve those goals, and each goal will have to be tracked and reviewed separately.

“Success from goal-based investing comes from correctly defining the variables, exercising discipline with your asset allocation, and investing regularly. In today’s dynamic world, things change at a rate one can’t keep pace with, and so you need to review your goal-based asset allocation portfolio every 6 months to ascertain whether it’s in line with the goal, or whether some variables have changed, causing your portfolio to need some correction.” Continuing, Mr. Sen said, “What I’m trying to say is that you could look at goal-based investing with mutual funds as a viable option for buying a home. Sure, you might have to postpone your dream of getting that home of yours a bit, but you’ve got time on your side. Also, this approach to investing will instil in you a sense of sincere discipline when it comes to your finances, and that kind of financial discipline is what will go a long way in helping you provide a better life for your family.”

“Well, I guess it makes more sense to wait a few years rather than be impatient and impulsive and jump into this house-buying. Besides, it does make sense, practically, to wait till I’ve got a healthy bank balance,” said Sid, having calmly listened to Mr. Sen’s reasoning, and having understood where he was coming from.

All the while, Ashwin was stuffing his face happily with chips galore, refilling the bowl every 5 minutes, as the others looked on in daft amazement, wondering what havoc that was going to wreck on his stomach the morning after.

Takeaways

• Goal-based investing can be clubbed with mutual funds, and with time, one can predict acertain percentage of returns to fulfill certain goals

• Success from goal-based investing comes from correctly defining the variables, exercisingdiscipline with your asset allocation, and investing regularly.

Ashwin’s groans & Sid’s goals

The aftermath of Ashwin’s chips& the thing about SIPs11

And so, after that chips-munching rampage that resulted in non-stop disruptive belching, the doorbell finally rang as the clock struck 8.20 p.m., and Ashwin sprinted across the living room like an athlete in the Olympics (funny part being he and an athlete were polar opposites) to make sure he was the one to answer the door. Hell hath no fury like Ashwin’s stomach scorned. After giving the shocked delivery boy a mouthful for the late delivery (over 45 minutes!), Mr. Sen appeared, apologised for Ashwin’s little rant, told the delivery boy to attribute it to a cranky hungry man, and threw in a good bit as a tip for the poor fellow.

Ashwin dashed into the kitchen and took it upon himself to get the food ready in serving bowls; Kabir helped Mr. Sen out with arranging the plates and getting the table ready; and Vivaan and Sid settled and tidied the undone sofas in the living room before heading into the dining room to eat dinner. Food was finally served, and everyone took generous helpings – Ashwin taking the most generous of them all, of course. “Hey Ashwin, there are five of us here. Just saying,” said a filter-free Vivaan, chuckling. “Just look at him stuffing his face!” Kabir exclaimed, “he’s not even bothering to look up from that plate of his. We might have met up after years, but tonight I have my doubts concerning his loyalties. Guys, I think we’ve been replaced by those chopsticks.” The entire room erupted with laughter, save Ashwin, who was still blissfully gobbling his food like a child eating candy.

After two helpings, Ashwin somehow managed to draw himself away from his plate of food, and with half a mouthful of food, uttered, “Excellent stuff! Really, Fat Lee’s hasn’t changed a bit. Those wantons were a slice of Heaven!” “Well I’m glad you enjoyed the meal, Ashwin,” said Mr. Sen, as he reminisced about his tutoring days, when Ashwin was just the same greedy glut he was now. “Some things never change,” Mr. Sen mumbled to himself with a soft smile on his face. Post the meal, everyone was too stuffed to move. “I feel like my pants are suddenly two sizes too small,” said Vivaan. Sid reiterated the sentiment, and added, “Just like your brains,” and the entire company burst out laughing hysterically. As they sat like logs at the table, biding their time, waiting for those humongous portions they’d chowed on to digest, there was some much-needed silence; the kind of self-satisfied silence that needs no explanation. And while Ashwin’s thoughts were affixed to dessert, Sid’s thoughts hadn’t seemed to stray from his mutual fund quandary. Vivaan left the table briefly and headed into the kitchen saying, “I’m going to go get another bottle of water to sip on. Anybody want anything from there? Ashwin?” Ashwin was still daydreaming about honey noodles and ice cream, when Sid very rudely interrupted his sweet dreams and boomed across the room, “Vivaan, you’re a genius! I knew there was something that I was missing out on. Mr. Sen, I’ve been meaning to ask you this all along, but it kept slipping my

The aftermath of Ashwin’s chips & the thing about SIPs

mind for some God forsaken reason,” he said as he directed his gaze at Ashwin, who, not oblivious but not perturbed by the gibe, was still chewing his last morsel of food, and ruminating. “Carry on, Sid. What was it that you’ve been meaning to ask me?” said Mr. Sen.

“A lot of the lads at work talk about these SIP things. I’ve enquired a couple of times myself, and it seems like a very in-demand thing. A lot of my colleagues have even recommended I invest in SIPs. Since they all swear by it, I thought I’d follow the herd. But, since we’re having this talk now, I was wondering if maybe you could throw some light on what they are exactly?” said Sid. “Ah, SIPs! Yes, everybody’s heard of SIPs, I’m sure,” he replied, as Vivaan pranced back into the kitchen enquiring, “what was all that genius talk about now, Sid? Mind elaborating? We’ve got a good bit of time to discuss that,” he said as he took his seat at the table, with a sly grin across his face. “Oh, get over yourself, already, Vivaan! We’re talking about SIPs now. Your genius will just have to wait,” said Sid, as Vivaan gave up. “No point persisting with this financially-charged fellow today,” he mused.

Once this trivial bickering was done, Mr. Sen resumed, “About Systematic Investment Plans, or SIPs – Yes, Sid, these are highly suggested for volatile asset classes like equities and gold. Hence, if you’re investing in equities, gold funds, or even balanced funds, SIPs would be the recommended way to go. Moreover, SIPs are a great way to inculcate some valuable financial disciple, because it deals with the concept of regular investing, market movements aside.” “So, it’s sort of like the saying, ‘Oceans are nothing but drops of water, one at a time,’ then?” said Ashwin, causing everyone to jerk their heads in his direction, surprised that he’d actually been listening in. “What? Now that I’ve got food in my belly, I’m good to go,” he said nonchalantly. “Well, that was rather unexpected, but yes, Ashwin, that’s precisely what SIPs are. To get a bit technical, SIPs come with a minimum investment of Rs. 500 to Rs. 1,000; and hence, one can start small, and start early, greatly benefiting from the powers of compounding. So, you don’t need to invest some mammoth sum to get started. Additionally, SIPs work on the principle of Rupee-Cost Averaging, wherein the fluctuations in the market and Rupee-Cost spectrum eventually end up balancing themselves out. This principle benefits the investor such – because you are investing every month, irrespective of the market value you buy at high and low or NAV, it helps bring down the average cost of acquisition, as it captures the highs and lows of the market at various points of investment.”

“Hmm. Sure sounds interesting, Mr. Sen,” said Sid, “I think I’m going to consider this SIP thing.” “That’s good to hear, Sid. And I can see a marked change in you demeanour since you came in.

The aftermath of Ashwin’s chips & the thing about SIPs

That gives me immense joy, and I’m glad I had a role to play in it,” said a kind Mr. Sen.

“Hey guys, let’s clear out the table, and save Mr. Sen the trouble, huh? I think we’ve troubled him enough for one day, and I’d reckon it’s high time we head home,” said a reasonably exhausted Kabir. “Yeah, Mr. Sen, you need to catch up on some sleep, and we’ve already overstayed our welcome,” said Vivaan, as he started clearing away the plates and glasses.

Takeaways

• SIPs come with a minimum investment of Rs. 500 to Rs. 1,000; and hence, one can start small,and start early, greatly benefiting from the powers of compounding

• Because you are investing every month, it helps bring down the average cost of acquisition, asit captures the highs and lows of the market at various points of investment.

The aftermath of Ashwin’s chips & the thing about SIPs

Tax deduction(s) available u/s 80C of the Income Tax Act, 1961 is subject to conditions specified therein. Investors are requested to note that Fiscal laws may change from time to time and there can be no guarantee that the current tax position may continue in the future. Investors are advised to consult their tax advisor in view of individual nature of tax implications.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Mutual Fund: Birla Sun Life Mutual Fund. Asset Management Company/Investment Manager: Birla Sun Life Asset Management Company Ltd. Registered Office: One India Bulls Centre, Tower - 1, 17th Floor Jupiter Mill Compound, 841, S. B. Marg, Elphinstone Road, Mumbai - 400013.

Investors should consult their financial advisors if in doubt about whether the product is suitable for them.

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(YELLOW) investors understand thattheir principal will be at medium risk

(BROWN) investors understand thattheir principal will be at high risk

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Are you loansome tonight? 12

As the four friends started wrapping matters up, Mr. Sen became pensive, and looking at the boys, wondered at how they’d all matured. He thought of the old days when the four of them would leave the place in a mess, wreak havoc, and leave without so much as straightening a cushion. And how today, things had changed so dramatically, with them clearing up, and helping out, so as to not increase Mr. Sen’s workload. Today, they were all grown up and responsible, but still the same children at heart. ‘How fast time flies’ thought Mr. Sen, and he welled up, but instantly composed himself lest the boys see him vulnerable. He’d always been such a strong father figure to them – something of a bulwark – that he didn’t want to tarnish that image by showcasing his sensitive side. Not that he had anything to be ashamed of, but the day had just been so perfect, and having not had such company in years, it was only natural that Mr. Sen felt this medley of emotions.

As he sat silently at the table, Kabir came up behind him, placed his hands on his shoulders and said, “Well, Mr. Sen, we’ve cleared it all up. The dishes are all washed and have been put back in their designated places – yes, we still remember them. Surprisingly, Ashwin was able to tear himself away from the cookie jar, and help us out as well. Quite an accomplishment, I’d say!” “Well, look, I believe in living life King size, and so what if I’m given to hedonistic delights? Come on now, don’t tell me you don’t agree, Kabir. You were quite the foodie back in the day yourself. Whatever happened to that?” asked a curious Ashwin. “I’m still very much that foodie, Ashwin. Just that I believe other things in life trump food, unlike you!” replied Kabir. “Ah well, to each his own. But I’ll say this – I firmly believe that the way to a man’s heart is veritably through his stomach,” said a smug Ashwin, to which Vivaan was quick to respond with, “God bless your wife, Ashwin! Heaven knows what a storm she has to cook up in the kitchen to please you, you insatiable lump of lard!”

The laughter that proceeded aided digestion a great deal. As they packed their things and got ready to leave, Sid had one last mutual fund query, but he proceeded with caution, “Mr. Sen, if you don’t mind, there’s just one last doubt I’d like clarified with regards mutual funds. If you’re too tired, and I can tell that you are, I’ll desist. It’s just that you’ve been so frank and explained this so wonderfully to me, I couldn’t dream of going to another to ask now. Nonetheless, there’s a time and place, so if you’re not up for it, I’ll pester you another day.” “Don’t be foolish, Sid, ask away.” The four friends encircled Mr. Sen as he sat on his grandfather chair – a throwback to their younger days, when they’d huddle around him in much the same manner, when he’d patiently sit down post tuition to tell them stories – personal life stories, and also fictional ones that he was great at coming up with.

Are you loansome tonight?

“Does it make sense for me to take a loan against mutual funds, Mr. Sen?” asked Sid. Mr. Sen heaved a sigh, and said, “Yes, Sid, you can certainly take a loan against your investments in mutual funds. Most banks provide loans up to 50 – 85% of the value of your investments in mutual fund schemes, depending on the type of scheme you’ve invested in. Broadly speaking, cash funds/liquid funds with lower downside risks can get you 80 – 85% of the value of your investments; equity funds, however, have higher downside risks, and hence qualify for lower amounts – so say 50% of the value of your investments.” “So it’s kind of like leveraging,” said Vivaan, rather doubtfully. “Leveraging and all – big terms, Vivaan! Have a heart – I’m a finance newbie, and you’re throwing around jargonised terms while I’m still adjusting myself to this whole mutual funds business,” said Sid, jokingly. “Correct you are, Vivaan,” replied Mr. Sen, “I’m impressed that you’re aware of the concept.” “In truth, taking a loan against mutual fund investments is no different from leveraging, and hence, Sid, you shouldn’t use this as an investment strategy; rather, use it only if you are in dire need of temporary investments, and wouldn’t break the investments intermittently before the advised time period. You see, the lending entity – in this case the bank – will advise the mutual fund to mark lien (something like a security) against the units on which the loan has been provided; hence, you won’t be in a position to redeem the money till such time as the lien marking is removed by the fund. And this will only happen once the bank gives the go-ahead to the mutual fund house post the repayment of the loan by you. For example, say you’ve opted for a home loan – the bank will mark lien against your property; this means that the bank will hold the property till you pay back your loan – if you default on your obligation by failing to disburse the loan amount within the specified time period, the house will be confiscated. So, it’s actually a bit tricky; and you’ve got to tread carefully.”

Takeaways

• Most banks provide loans up to 50 – 85% of the value of your investments in mutual fundschemes, depending on the type of scheme you’ve invested in

• Taking a loan against mutual fund investments is no different from leveraging, and hence, youshouldn’t use this as an investment strategy; rather, use it only if you are in dire need.

Are you loansome tonight?

Teary eyes, sad goodbyes,& an unexpected surprise13

“If that’s all, inquisitive Sid, can we say that’s a wrap?” asked Ashwin, who’d noticed that Mr. Sen’s eyelids were gently drooping, but doing their very best to keep open. “That’s all, folks!” said Sid, doing his best Looney Tunes Porky Pig impersonation. The boys all embraced Mr. Sen before leaving, telling him to get some rest, and thanking him unceasingly for his hospitality. “Today was special, Mr. Sen. We’re so touched that you think of us after all these years,” said a bleary-eyed Vivaan. “Really, Mr. Sen, if it weren’t for your phone call, I think we’d all have drifted apart for good. Life’s a pretty cruel teacher, and we’ve come to learn that today,” continued Kabir. “Mr. Sen, you take care of yourself, and get some sleep. It’s been such a whirlwind, this day, but of the best kind, and I know none of us are ever going to forget it. We’ll drop by tomorrow maybe once again to help you with the gardening. I mean, Vivaan and I have taken a couple of weeks off from work, so we could do this again?” he said, as he looked over at Vivaan. “Oh, of course!” came Vivaan’s blazing reply, and Ashwin topped it off with, “and the next time, lunch and dinner are on me.” “They better be, considering you eat 60% of the food!” said Vivaan. Lastly, Sid turned to Mr. Sen, and embracing him like a boa constrictor, said, “Mr. Sen, you don’t know how much your patient advice has meant to me. Really. I’ve been so fraught with anxiety about this for the longest time, and I just didn’t know who to talk to. I’m terribly sorry for this barrage of questions and outburst of emotions today, but I can’t quite talk to anyone else the way I can to you. Please know that you hold a special place in all of our hearts, and forgive us for not staying in touch. I think I can speak for all of us when I say you’re a godsend – in every sense of the word. I hope I haven’t hassled you too much today, and if I’ve overstepped any lines, please pardon me. I’ll always be eternally grateful and indebted to you for your love, care, concern, advice, and wisdom that have been a constant.”

And so the floodgates opened for all. “You know I always have and always will be there for you boys,” said a deeply touched Mr. Sen. “Well now, I’m glad you boys have all taken away something from today’s get-together. It really was wonderful catching up again, and I hope to see all of you back here soon – maybe to play that game of cards that we missed out on today? And some gardening too, perhaps. But for now, Socrates beckons, and I must answer, so off with all of you now! Goodbye and goodnight!” said Mr. Sen as he shut the door after them, bidding them farewell.

Having switched off all the lights, Mr. Sen, bespectacled, and with Socrates in one hand and a glass of warm milk in the other, had just about entered his bedroom and was getting ready to settle comfortably into bed when the doorbell rang. Alarmed at the hour, and never one for entertaining guests much, Mr. Sen switched on the living room light, carefully made his way to

Teary eyes, sad goodbyes, & an unexpected surprise

the front door, looked through the peephole, and unlatched and unlocked the door. Vivaan stood there, alone, perceptibly jittery. “What’s going on, Vivaan? Is everything okay? Has something happened?” asked a worried Mr. Sen. “Mr. Sen, hearing you speak today made me realise something – you’re the only one I’d divulge my personal problems to. And though I haven’t been expressive today, often even seeming confident and content with my success, something’s been bothering me. Financially...” said Vivaan, shedding his overconfident façade. “Talk to me,” said Mr. Sen, as they sat on the bench in the garden enveloping Mr. Sen’s house, with nothing but the streetlights and owls for company.

Teary eyes, sad goodbyes, & an unexpected surprise

A Word from the wiseMahesh Patil,Co-CIO, Birla Sun Life AMC

1. What is an ideal investment philosophy according to you?Let me start by saying that there isn’t any single investment philosophy that would besuitable for all investors. Each individual investor should evaluate his own financial goals, riskappetite and investment horizon to decide on suitable asset allocation. If required, oneshould seek help from a qualified financial advisor in putting together a sound financial plan.Investors should ideally invest in Equities for their medium to long-term needs. Theinvestment portfolio must be evaluated periodically (maybe once a year), and rebalancedfrom time to time, with lesser exposure to risk assets as the redemption period draws closer.

2. Your advice to investors who prefer avoiding the markets following any volatility?If we look at the past, investors who have remained invested through volatile periods havegained much more than those who have exited or refrained from investing when marketswere volatile and low. The simple and smart way to invest is through systematic investmentsin Diversified Equity Funds. Investors should continue to add exposure to equity and Balancedfunds when markets are low and volatile with small monthly contributions through SIP. Thushe would benefit from averaging when markets are low, while the fund manager uses hisexpertise to allocate the funds across stocks and sectors, in the endeavor to beat marketindices and generate superior returns for the investor in the medium to long-term.

3. How critical is investor education when it comes to mutual funds? Do you think it will helppromote MF investments in a more informed manner?Yes. It is very important for the investors to know which is the right fund for them, dependingon their individual needs. An aware investor would be able to invest in line with desired assetallocation for his financial goals and choose the product that is suited to his investmenthorizon. This will help him identify the most suitable investment options depending on hisrisk profile, investment horizon and desired asset allocation.

4. Mutual funds should cover how much percentage of our overall financial portfolio?An investor can allocate almost all portions of his financial investments in Mutual Funds. Ofthis, long-term investments would be in Equity Funds, medium-term investments in Incomeand Hybrid Funds and savings or emergency money can be parked in short-term Funds orLiquid Funds for better returns.

5. Which sector is expected to give higher returns on investments?We are positive on IT, Banking and Pharma sector. IT sector, a favorable tail wind in form ofstronger developed world growth and a supportive currency continue to help the sector- weare also positive on Banking sector- which is like proxy to the economy and as the economytends to bottom out we could see banking benefiting from the domestic recovery. Healthcareis a sector we like. The sector has exhibited superior earnings growth over the last few yearsand future earnings potential are equally promising.

6. When do you see a reversal in the interest rate trend?The reversal in interest rate trend would depend on the inflation. Currently the Reserve Bankof India has set up a committee which will look at inflation measure for monitory policyframework. Further clarity on inflation targeting and its trajectory would guide the interestrate going forward.

Know the team behind this book

1. Madhu – The Incredible Hunk Hailing from the South, this fitness freak has a strict diet regimen, which he augments with

his love for cycling. This healthy lifestyle has assured him a good physique, which has earned him the fond nickname of ‘Salman Khan’ among his colleagues. However, he does have one guilty pleasure that he frequently indulges in, his deep, dark secret – dark chocolate. When he does choose to stray from his strict diet, you’ll find him happily gobbling all forms of dark chocolate – from the good ol’ dark chocolate to ice-creams, and any other kind of dark chocolate dessert variant. And when he isn’t running around getting business in, he’s a typical son’s father, kicking back with his son watching superhero movies – and no, before you go there, not just the Rajnikanth ones! Cool as a cucumber at all times, Madhu is a great asset to the team.

2. Sharmili – The Worrywart Mom A child at heart, this Marathi mulgi still enjoys watching cartoons and TV soaps, and you’ll

often find her happily sneaking a peek at work on her laptop when on short breaks. A fanatic of The Bold and the Beautiful, Sharmili went so far as to attempt drawing out the family tree. Suffice to say that didn’t go very well given the characters in the show and their intertwined, beyond-complicated relationships! Aside from that, she also enjoys her dosage of F.R.I.E.N.D.S., and her OCD, neat-freak mannerisms have earned her the nickname ‘Monica’ among friends and family. When she’s not shuffling between cabins at work, Sharmili is a full-time, first-time mom, chasing her young son around and pampering him silly – so all the shows and cartoons have taken a backrest. Easy-going and carefree, Sharmili’s great fun to be around, and her vivacity is unmistakable.

3. Divya – The Straight-Shooter This Marketing diva is, to put it plainly, full of contradictions. Swining to and fro from

philosophy to reality, Divya often questions the purpose of life; feeling materialism is a curse and that life isn’t worth it if you can’t spare time to see the sunshine and smell the roses while simultaneously feeling you’ve got to work and slog till it kills you just to earn the big bucks and own everything materialistic there is to own. If her bank account was overflowing with the moolah, she’d probably be a traveller in search of wanderlust, visiting every place on the map. Then again, she might also be some la-di-dah, Page-3 socialite attending kitty parties,

going for spa treatments, brunch parties, and other such supercial events. That’s not it just yet – she might also just give it all up and become a semi-monk, an ascetic on the journey of life trying to tap her inner Zen. Yep, contradictions galore, this one – it’s like she puts it, “Still wondering, still discovering”. How profound. And while she may strut around work all het up and flustered, Divya’s equally fun and makes for great company.

4. Tina – The Tiny One As tiny as they come, this fiesty one is forever buried in her books – if she’s not at her desk at

work, you’ll find her sitting comfortable on the reception sofa, engrossed in a book. Creative to the bone, Tina enjoys reading, writing, and drawing. If you need proof, just ask her to write a 500-word article and see what she gives you. When she isn’t exhausting her fingers at her computer at work, she’s plonked in front of the TV switching channels and watching recorded shows. Not one for vegetables at all, Tina’s a strong proponent of non-vegetarian food and all things even remotely associated to the word chocolate. And while she may come across as quiet and shy at first, this tiny package is a whole other ballgame altogether. An English prude with a strange pet peeve (she hates people sniffling), Tina’s fun to be around once you get to really know her.

5. Pankaj – The Sanyasi Born to ride, Pankaj defines the word wanderlust. Hopping on his bike quite spontaneously,

he’s one to travel to quaint, unconventional locations to unwind. A monk in the making (with no Ferrari to sell, though – sadly), Pankaj, weary with the conditioned ways of living, is on the brink of renunciation. Passionate about Tarot, he’s actively involved in penning his own Tarot predictions on a yearly basis – so, you could approach him if you’d like to know how your stars are aligned this year. An avid reader, his literary interests rest mainly in ancient Indian culture (i.e. the Vedas/Upanishads) and psychology; and given his obsession with Freud, don’t be surprised if you find him psycho-analysing you or playing mind games in the course of an innocent conversation. Bitten by the movie bug, his repertoire of movies watched is expansive and exhaustive. All in all, his bindaas go-with-the-flow attitude is a refreshing change at the workplace, and his talking T-shirts are pretty cool, too!

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