We Indians love bargains. We hate to pay a higher price, however small the difference may be, for a product or service that can be had at a discount. It is this frugality, I guess, that also makes so many investors resent the commissions they pay to their distributors or financial advisors.
'When I can save 0.5 or 1 percentage point every year in commissions, why shouldn't I move to mutual-fund direct plans and save those payouts?' - that's the question many readers are asking after the recent SEBI move to push mutual funds to popularise their direct plans and come clean on commissions.
The time factor
The answer to it is simple. You can go ahead and switch to direct plans if you think you are capable of managing all your investments and getting to your financial goals entirely on your own.
This means giving top priority to your money and making the right investment decisions at the right time, irrespective of the pulls and pushes of your career, family responsibilities, social commitments and dozens of other demands on your time.
In my long career as a financial writer, I admit I have not been able to do so. Nor have most of my friends and colleagues who write on investing and personal finance.
Nor have some of the best fund managers in this country! For the last two years, I have been profiling some of India's top equity managers for the column 'Getting Personal' in the Mutual Fund Insight magazine.
Where experts fail
When I ask these top-notch equity managers about their personal finances, many (the more candid ones, at least) have the same regrets that ordinary investors have. They didn't start on SIPs early enough in their career. They bought fancied stocks for their portfolios and forgot to sell them while they turned into duds. They didn't invest in stocks during the 2008-09 lows, which was a lifetime opportunity to buy. They idled the money in FDs when they should have bought equities.
Clearly, these money managers didn't lack the market knowledge, investment savvy or even the money to make the right investment decisions; they simply lacked the time!
As a writer on financial markets, I have encountered the same problem. Every time the Sensex dips to a new low or market valuations are absolutely mouth-watering or there's a great opportunity to invest in tax-free bonds, writing about these trends (which is my job) gets me all excited and takes up all my time. By the time I think of acting on an opportunity (subject to house rules and restrictions), it is usually long gone!
If those in the financial profession, whose full-time job it is to track the shifting investment landscape, find it hard to devote enough attention to their portfolios and financial goals, it must be doubly hard for those who pursue other careers that have nothing to do with financial markets. In fact, the more successful and passionate you are about your chosen career or profession, the less likely you will be to find time to baby-sit your investments.
Babysitting
That brings us to the other key point. Being successful with financial investments, unlike buying iPhones or Nike shoes on Flipkart's Big Billion Day, is not about making a few extremely smart moves that you can boast about to your friends.
Yes, if you're a savvy investor, you may get into equity funds at a new market low, buy a tax-free bond with a 9 per cent yield or manage to accumulate blue chips at rock-bottom rates. But without watching over your portfolio like a hawk, how are you going to rebalance those equity funds at the right time, re-invest maturity proceeds from that tax-free bond or get out of that 'blue-chip' stock which turned into a dud?
Getting your one-off investment moves right is quite a different ball game from ensuring that you get to your long-term financial goals such as sending your kids to a good college, buying a home or retiring comfortably with your limited savings.
Having a plan
Successful wealth creation of this kind requires more than a few smart transactions. You need to sit down and systematically chart out your goals (which may change at different life stages), make a plan, draw up an asset allocation and then stick to it.
This portfolio will require quite a lot of mid-course corrections too, because it will call for twice-a-year or four-times-a-year monitoring, booking profits and rebalancing between assets, making product switches based on performance and tracking the periodic dividend/interest flows to reinvest.
If you enjoy this and are meticulous enough to do it, you can well be a DIY investor. But if you don't, to do these mundane and utterly unexciting tasks, you need a financial advisor.
And that brings us to another caveat. If your 'financial advisor' or distributor is focused entirely on one-off transactions - sometimes selling you a brand-new NFO, randomly switching you from one fund to another, pushing every new traditional insurance product - and shows no interest in your long-term financial plans, then you need to either change your advisor or try your hand at DIY investing.
This article was originally published on June 02, 2016.
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