One common feature in the life of NRIs is that they are time-poor. They earn well, but they do not have sufficient time to make informed decisions on matters concerning their finances. They need support and advice on how to manage the amounts of money that they earn through their hard work. Quite a large number of them remit money to their hometown, to their banks, and place them as fixed deposits. But the money deserves to earn more.
Being time-poor requires them to seek help from qualified and experienced professionals. Apart from the lack of sufficient time, yet another hurdle for them is the limitations set by lack of information and advice to make proper decisions on finances; there is a lack of awareness about markets, products, and plans. This is a natural consequence of the fact that many of them tend to be specialized in entirely different fields, they may be doctors, engineers, chefs, travel agents, healthcare workers, etc. Therefore, they will know much less about finances than what persons from banking and financial services would know. Hence, there is a need for personalized advice and guidance.
Again, if you look at the market as a whole, there are several products and schemes all of which may appear to be worth investing in but may not be suitable for the particular investor. The problem is prevalent whether it is the fixed income products or the bond market, and equity products. In the equity market alone, there are thousands of listed companies whose shares are quoted, and so many in the unlisted space too. There are mutual fund schemes, large-cap funds, mid-cap funds, thematic funds, etc. There are private equity and alternate investment funds.
How do we scan through this jungle and pick up the herbs that we need?
The best thing to do is to look at managed funds. These are funds that are managed by professional fund managers both in the mutual fund space and portfolio management services. When you subscribe to a managed fund you are handing over your investment to them based on certain laid down parameters including the type of instruments in which the investment is made, how much is charged by way of fees etc. This provides transparency in the dealings and also sets the expectations from the investments.
Mutual funds are an ideal vehicle for investors because of several reasons. They offer well-diversified portfolios. As an individual investor, you may be buying a few hundred shares of a particular company, and you are exposed to the price variations that happen in that company. This carries a higher risk. Second, you have purchased the shares of a company you are not well aware of, and you do not have the wherewithal to track the developments in the company.
Mutual funds in contrast offer portfolios with a larger number of scripts, twenty, thirty or even sixty scripts. Therefore, the portfolio is well-diversified, and you do not need to worry about the movements in any particular script. There may be gains in some shares which will more than outdo the losses in another few. Therefore, you carry much less risk. At the same time, information is available on a daily basis on where you stand in terms of your investment. This is possible due to the net asset value which all mutual fund schemes publish on a daily basis. The difference between the net asset values for two days reflects the gains or losses that you have made on an investment. This also lends greater transparency to what is happening to the portfolio. You can also get the list of holdings in the portfolio every month. Mutual funds are well regulated by SEBI at different levels even including the types of schemes they launch from time to time. Mutual funds afford you a lot of convenience and ease as far as your investments are concerned.
Yet another thing to be borne in mind is that the range of choice presented by a mutual fund is quite exhaustive. They give you opportunities to invest in large-cap stocks or blue-chip stocks, as much as they would offer you -mid-cap stocks, which are smaller companies than large caps but having good growth prospects. They also offer thematic and sectoral funds to those who wish to invest in banking or technology or climate change or infrastructure etc. Most of the mutual funds offer international investing facility through international or global funds. They also have emerging market funds and China Fund etc. So, the range of choice is pretty wide. All that you need for your investment portfolio is available from the mutual fund stable.
One thing that you need to be careful about is that, while every mutual fund is offering a blue-chip fund, which one fund you should go in for or invest into? There may be one dozen products in the same category but which one to go by. Here you need to weigh the performance of the fund or portfolio over a three-year of five-year period, based on both risk and return-based factors.
There are time-tested models like the Enhanced Efficiency Model (EnEf Model) which incorporates both sets of factors that help you select the better funds for you to invest in. This is where an advisor comes in. An experienced advisor with a good track record is an essential ingredient of planned investments. Do not hesitate to talk to an advisor and seek help. But this does not mean that you should use only mutual funds as a vehicle for investments. While this may be the dominant vehicle, there are opportunities provided by well-managed portfolio management schemes, and also some amount of direct equity as well. But mutual funds have a lot to offer if the scheme or fund selection is done scientifically.