This should be your response to clients:-

• This is difficult to predict when markets will fall. We should not try to time the market.
• In fact, markets may not go down in the near term. In such case, you may lose the upward movement in your investments. While nobody knows this, this remains a possibility.
• Even if markets go down, you may not be able to invest then. This is because; during a crisis investors generally think markets will further fall. Eventually, they miss the opportunity.
• There might be costs and taxes involved in doing such transactions.
• You should book profits only when you need funds/your objective is near or there is an emergency. Otherwise, you should continue to hold your investments. I have seen this works well for most investors.
• Research shows that if you book profits and miss a couple of big upsides in the equity markets, your returns can fall dramatically. You should try to hold for as long as you can.
• Well, even if you insist that you must book profits, I would suggest to do partial booking and in phases so that you don't miss the up move.

181

This should be your response to clients:-

• When you need the funds and there are no alternatives.
• When your goal is approaching in the next few years, you should review it and if returns are good, you can start booking partial profits.
• When actual returns are much above your targeted returns and you wish to play it a little safe. In such cases, you may consider booking partial profits in tranches and switch to debt funds and do STP back into equity funds over a period of time.
• You should not attempt to time the market by booking profits and investing at lower levels. It may not happen. Research shows that if you book profits and miss a couple of big upsides in the equity markets, your returns can fall dramatically. You should try to hold for as long as you can.

133

This should be your response to clients:-

• If you have invested in debt funds, you don’t need to worry. The volatility in debt funds is low.
• You should be a bit concerned only if you have invested in equity-oriented schemes. However, there are ways you can reduce the risk so that you are not exposed to high risk in the year in which you need funds.
• Suppose, you need funds after 15 years. In this case, you should increase the frequency of reviews after 10 years. If markets are good and your returns are decent, you can consider booking profits in tranches by switching to debt funds so that you are not dependent only on the 15th year.
• Also, you should not have all your investments in equity funds. You should also consider debt-oriented funds and balance funds. Proper asset allocation will greatly reduce your risk.
• Since I am associated with you, I will also monitor your investments and help you with the right strategies.

Note: Do give proper disclosures as suggested by regulators

130

This should be your response to clients:-

• Of course. I agree. Business mostly gives better returns than other financial investments. But, there are some strong reasons why you should consider savings and investments beyond your business.
• Comparing business and investments is not correct. In business, you invest both money and your time. You work hard for 8-10 hours every day. That is why businesses give higher returns. With investments, you don't have to invest your time and effort.
• When you save and invest in mutual funds, you safeguard your future. I am sure you must have some insurance policy or PPF. They offer lower returns but still, people do them. The reason is safety and long term savings. Every investment is not meant just for high returns.
• When you save money through mutual funds, you buy peace of mind for your future years.

134

This should be your response to clients:-

Yes. When you invest directly, you can reduce your cost. But it is not as simple as it sounds.

Expertise
I know my subject well. I keep myself updated with the developments concerning your investments. There are thousands of schemes to choose from. I do all the hard work to select the best schemes for you. I am sure my suggestions will help you make more money than the additional cost you incur on hiring me.

Service
I give you great service. I and my office are always at your service. While it may not be evident but it costs money to provide excellent service. Timely service adds great value.

Review
I review your portfolio regularly even when you are not aware. I do this as a routine for all my clients. Review doesn’t always mean action. I suggest you changes/action only when necessary.

It’s mutual
I can grow only if my clients grow and stay with me. Therefore, I make sure that I give you the best advice and service so that you stay with me for the long term. I try to do my best so that you get much more value than the cost you incur. Unless I do this, I won’t be able to retain you. So, I work hard to ensure that I give you much more value in return. It’s mutual. My life depends on my clients and so you can expect that I will do the best so that I have you as my client long term.

Protection
I protect you from taking wrong decisions. I manage your emotions which can drive you to make mistakes. A great amount of value is added when I say ‘no’ to many things which you/investors want to do which could negatively affect the portfolio. It is difficult to put a price to this.

Limited clients
I work with a limited number of clients so that I can give my complete attention to them. This means I am betting my life on the clients that I have.

Other investments
Being associated with is beneficial in many other ways. Apart from mutual funds, I answer your queries on several other day to day investment queries that you may have. You get an authentic response from me. I solve many other issues that you face with your investments.

24/7
With me, you have a person who is available to serve you 24/7 for years and decades to come. Today, you may think you can do it yourself but tomorrow you may again need someone to advice you. You may find other advisors but trust factor may be missing. With me, trust is already established. The cost you incur on my services is a very small price to pay for my integrity, expertise, service and trust.

137

This should be your response to clients:-

• Yes, property gives good returns but not as much as you may think. Also, the holding period of property is generally very long. If you hold equity funds that long, its return may beat property. Some property gives excellent returns but many others give poor returns.
• As a whole, returns in property average out. People say that land investments give great returns but they are also very risky. Also, property is illiquid. Equity funds have high liquidity (funds are credited in 3 working days). Property can have legal issues. Equity funds are free from it.
• Property has high tax implications. Equity funds have lower tax (10% after one year ). Off late, property is not doing well. Prices have in fact gone down in many cases even after holding it for many years. So, it may not be always true that property gives higher returns.
• Property generally involves high amount of investments. As against this, you can invest any amount in equity mutual funds. If you choose to invest through SIP, the risk can come down and you may not have to invest lump sum too.
• I am not saying that you should not invest in property. All I am saying is that you should consider investing a part of your money in equity mutual fund schemes. This will diversify your investments. Their past track record is exceptional.

Note: Do give proper disclosures as suggested by regulators

122

This should be your response to clients:-

• Yes, you are right. There are no guarantees of returns in mutual funds. The regulator of mutual funds doesn't allow this. But if you know why this is, you will understand better. Let me explain.
• You see, it is your money and you have a choice of over 5,000 schemes to invest in. You can choose equity funds, debt funds, liquid funds, balanced funds, sector funds, etc. Mutual funds simply act as a bridge. They offer you the convenience of investing as per your choice. The total gains (and losses) are yours. They don't keep any excess profit with them. So, the question of guarantee doesn't come. They only charge you a small fee to provide you with the service.
• Mutual funds are just a pass-through vehicle. They don't take money from you for themselves. They simply invest it on your behalf as per your chosen objective. Whatever they earn or lose, they give it back to you after deducting a small fee.
• If you see the past track record of mutual fund schemes, you will find that mostly returns given by them is superior to other comparable guaranteed income products like fixed deposits, corporate bonds, etc. In fact, they also benefit from the economies of scale.
• If you look at the size of the mutual fund industry, you can find that millions of investors - both individuals and top corporates, are investing in mutual funds. They must have assessed the benefits of investing through mutual funds rather than directly in guaranteed products.
• You can begin with a small amount and see for yourself how it works. Once you are comfortable, you can increase your investments.

Note: Do give proper disclosures as suggested by regulators.

123

This should be your response to clients:-

• This is not entirely correct. All mutual fund schemes are not risky. All schemes do not invest in shares. There are all kinds of schemes and options in mutual funds. for eg. There are liquid funds which have very low risk. They are very liquid investments and you can redeem even after 1 day. These funds are a very good alternative for savings bank and current account. Around 20-25% of total mutual fund investments in India account for Liquid Funds.
• Then there are debt funds. They also don't invest in equity markets. Including liquid funds, around 60% of mutual funds assets are in debt funds. You can invest here. These funds are a good alternative to fixed deposits and savings bank account.
• Then you have balance funds which have a combination of debt & equity. They do have investments in equity markets. While in the short term they can give negative returns but you may consider these funds if you are looking for capital appreciation over the medium to long term. Around 10-15% of mutual fund assets are in balanced funds.
• And then you have equity funds. As the name suggests, they invest in equity markets. These funds can have high volatility but you can also expect higher returns if you invest for the long term. Out of the total mutual fund industry size, only around 30-40% of assets are in equity and balanced schemes.
• You can choose the funds depending upon how much risk you want to take. Remember, over 60% of investments in mutual fund schemes do not have any investment in shares.

Note: Do give proper disclosures as suggested by regulators

119

This should be your response to clients:-

• Yes, it is true that Ulips are tax-free and mostly, they also have lower fund management charge. However, this is not the whole story. You must consider other facts.
• Ulips are not fully investment product. They carry a component of life insurance (min 10 times to be tax-free). This component has a cost as mortality charge. This reduces your overall returns. Most Ulips come with some upfront cost (entry load) and they also have some minimum fixed annual maintenance cost. This also impacts your total returns. Because of such charges, the break-even point of a ulip policy vs mutual funds is between 7-10 years in most cases. Ulips score in costs only if you consider investment for more than 15-20 years.
• If for any reason, the performance of a particular insurance company is not good, you don't have a choice to redeem easily and switch to another insurance company's Ulip. In a mutual fund, this is very easy.
• While a few Ulips may have done well in performance, mutual funds have done far better across the universe.
• Yes, lower recurring cost and taxfree nature of maturity are positives for Ulip and you may consider a small investment diversification in Ulips if you are also looking for life cover. But given the track record of mutual funds, a larger portfolio should be allocated towards them.

116

Yes, it is very challenging to handle this objection. First of all, an advisor converts the clients FD into debt funds and then it underperforms.

This could be your response to clients:-

• These are tough times. I understand your concern. Due to unforeseen hike in interest rates in the country, debt funds are under pressure. (explain the inverse relationship between interest rates and bond prices).
• However, there is a positive development also. Since interest rates have gone up, the yield to maturity of debt funds have also gone up. This means, if you hold for another year or two, your return is expected to go up. Currently, in most debt funds, YTM after management fees is much higher than FD rates. If you continue to hold, you will get this benefit.
• If you hold your debt funds for 3 years, it qualifies for indexation benefit and lower capital gains tax. Your tax liability can reduce by up to 65-70% (if you are in 30% tax bracket) if you continue to hold. Because of this, even if the returns are equal to FD in 3 years time, you get better post-tax returns.

114

I fully understand your concern. These are tough times as equity markets are not doing well. However, I would like to bring to your notice the following:-

Primarily, there are 3 main asset class where you can invest. Let us understand them:-

1) Real Estate - As you know, real estate investments are currently not doing well. It also requires huge investments. It is illiquid also. I don't think this is a great time to invest in real estate.

2) Bonds - You can consider investing in fixed income products like bank FD, company FD, debentures, govt bonds, etc. Even mutual funds have debt schemes. I deal in these products and if you like them, I can suggest some options. While you should have some exposure in fixed income products as an asset allocation strategy but considering your profile, it is not a good idea to have overexposure in bonds. Their returns are not very exciting. Also, most of them carry a high tax on income. While they look attractive when equity markets are not doing well but if you are considering an investment for  5-10 years and above, they may not be a great option to invest in. If you think, you will convert your bond investments to equities when markets recover, it happens only in hindsight, not reality.

3) Equity - Equities offer the best returns in the long term. Yes, they are volatile and can give negative returns also in the short term but it makes sense to stay invested. When you invest in equities through mutual funds, they are safer than other forms of equity investment because of expert fund management and excellent processes that they follow. Don't just look at the last few year performances. I will show you the long term performance of the schemes in which you have investments. It is very decent. These are not very good times. Wait for a few more years and I think your investments will do well.

Most other investment options which you see in the market falls in one of the above categories. It may just be structured differently. So, there aren't really many investment options, just a variation of debt and equity.

I know it hurts to see poor returns in the portfolio and when you compare it with last 1-2 years of FD return, it pains even more. But if you hold your investments for many years and look back, you will find that these investments have done far better than FDs and you will be happy that you continued in equity mutual funds.

119

Yes, it is very painful to see the fall. While everyone knows the behavior of equity markets (that is is volatile), still, when it falls, it creates panic. Even if investments are made for the long term, it is difficult to hold them when they fall in value in the short term. That is why few investors make good returns on their investment.

Selling now and hoping to buy lower, amounts to ‘timing the market‘  which is not a great idea. Even experts suggest not to try it. Many times, we have seen that markets rebound sharply and investors keep waiting for markets to fall even further.

Again, if you are fearful now, then there will be more fear in the equity market if it falls from here. We have seen in the past that investors do not switch back into equity funds in such situations and eventually recovery happens while they have exited the equity markets.

I would suggest not to exit the equity funds now. Please hold your investments. Yes, markets can fall further, and there could be more pain in the near future, but rewards will come to you if you hold it for the long term.

If you still want to reduce your exposure to equity funds, let me know and I shall give you suitable planning for it. My suggestion, however, will be not to do this and sit tight.

122