In an interview with Yogita Khatri of myiris.com, Faisal Mehta, Associate Financial Planner (AFP), International Money Matters talks about factors to be considered while selecting funds, his top 3 equity and debt funds picks and more.
Faisal Mehta is working with International Money Matters as an associate financial planner (AFP) in risk management and insurance planning, tax and estate planning, investment planning and retirement planning. He has been with International Money Matters for about 3 years catering as the back bone of its Mumbai operations. He prepares financial plans and investment plans for clients.
> What are the aspects that matter you when selecting funds for your clients? Your top 3 equity fund picks and debt fund picks with key attributes you like in them?
The most important aspects which matter are the `Client risk appetite` and his `Financial goals`. Based on the same we decide on an appropriate asset allocation. In equity funds we basically look at the expense ratio, fund managers track record, top 5 holdings, top 5 sectors in which they are invested in, past 1,3,5 year returns and how the fund has perform vis a vis benchmark and other schemes of the same theme along with analysis of their ratios like Sharpe ratio etc. In debt funds we look at the interest rate scenario before taking calls on whether to park funds in a short term plan/ liquid fund and accordingly after analyzing the interest rate scenario we take calls whether to switch it to long term debt funds/ gilt funds. In debt funds the other important aspect which we take in to consideration is the AUM and though the past performance does not give assurance of future performance we still look at the scheme performance vis a vis benchmark and amongst the other peers and fund manager becomes important especially the fact that the fund manager has seen cycles like this before as well.
Top 3 equity picks:
1) In Large Cap- DSP BR Top 100 Equity Fund
The Portfolio primarily constituted of blue-chips. It is fairly diversified and at present the fund is actively taking trading calls. Possibly the right scheme for the first time entrants into the equity markets. It has consistently beaten the benchmark index i.e. S&P CNX Nifty in the past 5 years.
2) In Multi Cap - Benchmark S&P CNX 500 Fund
This fund is likely to provide the widest equity exposure compared to any other equity fund in India. The fund will be more of large cap biased with some midcap and small cap exposure. The fund can be recommended as substitute to large cap or Multicap category and not for mid cap or thematic funds.
3) In Midcap- BSL Midcap Fund
It is an open ended growth fund which focuses on investing in the midcap segment of the market. Key portfolio strategy is identifying stocks that can demonstrate strong growth over 3-5 years horizon. The scheme focuses on identifying scalable businesses with objective of identifying tomorrow`s large-cap and also keeps sharp-eye on valuations.
Top 3 Debt Picks:
1) In Liquid funds- HDFC Cash Management Fund- TAP
The fund has a good track record with a good AUM which matters most while choosing a debt Fund. It`s portfolio consists of good quality papers. It is an idle parking avenue if you want to park your funds for less than 6 months.
2) In Short Term Category- FT Short Term Income Plan
The fund has a good track record, less expensive in terms of expense ratio, good YTM and has outperformed its peers in the past 3 years.
3) In Long term Debt Category- Reliance Income Fund, HDFC Income
Both the funds have performed well considering the fluctuations in interest rates by keeping their average maturities very high as compared to other peers. As the yields have come down considerably due to increased in demand for existing papers we are expecting that these Fund houses will reduce their Average maturities making it attractive investments.
> What, in your opinion, do clients look for when choosing an advisor?
The most important aspect which clients looks at in a financial planner is `Trust`. Experience is what I feel is the second most important criteria which clients will gauge in a financial planner. Other aspects includes expertise, reputation, well equipped research team, fee model etc. Our client base is grown mostly on the basis of word of mouth i.e. referrals as we don`t believe in making cold calls to prospects but it is the prospects who contacts us via referrals/ reading articles.
> How are you aligning your business to the new regulatory environment? What changes have you made / are you making in your business to sustain profit growth in the future?
We have been a fee based model since 2004. When entry loads were abolished, our revenues were hit, but the concept of fees was not new to our clients. So, it became a little easier to charge clients though the fee component is now getting higher and consequently all products will remove the fees payable to advisors and expect clients to pay their advisors directly for the advice and service received by them.
> Are your clients nervous about markets? Are they looking at investing or redeeming? Are there any sectors or themes you are bullish on at this point in time?
Like I said earlier most of our client base is due to referrals and so they have faith on us. Our aim is to take the worry of `managing money` away from clients and leave them with a sense of comfort .They basically want that at least some one should look at their portfolio whether it`s a falling market or a bull trend. Our objective is not only to cater to clients needs but also to educate them which has helped us a lot in a bear trend which was there in 2008. If a client has achieved his targeted returns which meets his goal requirement we immediately insists clients in booking profits as our objective is to help clients in achieving financial goals. We are bullish on the infrastructure theme and financial services for the next couple of years.
> What are you recommending to your clients on the fixed income side?
It depends upon the type of client i.e. earning, non earning, senior citizen, young individual who has just started his career etc. Suppose he is a senior citizen it makes sense for him to utilize the maximum limit available in a senior citizen scheme which gives fixed quarterly interest or some portion in to NABARD bonds where the returns are fixed for certain tenure which will eliminate sense of instability/ fear which client has due to market, interest rate fluctuations and if client is willing to take risk then we need to analyze the interest rate cycles and take calls accordingly if the surplus should be invested in to income funds, gilt funds and play for the rise in prices of these securities by keeping a watch on the interest rates.
> Within equity funds, which are the ones you are most comfortable recommending?
We basically allocate the investments between large cap, multi cap, small cap, Thematic fund depending upon on client`s risk profile. The most important advantage of a large cap fund is it is less volatile if we compare it with a midcap/sectoral funds thereby making it an ideal investment for those who want to invest in good companies and not want to take higher risk and so in volatile times i.e. today`s scenario it is always advisable to invest in a large cap funds. Whereas a mid cap fund will invest in small companies which are usually less stable than large firms for e.g. fertilizer stocks, Praj Industries etc, we can expect relatively high volatility in these funds but they have a potential to give higher returns. We normally advise 5-10% exposure in thematic funds just to give kick to the portfolio but it could go either ways. A financial planner would be in a better position to make an appropriate asset allocations depending upon clients goal and risk appetite.
> What is your advice for starters?
1) Trust your advisor if he has one or else manage the finances on own if a person has time & expertise.
2) Pen down the goals and accordingly decide mutually with your advisor the best investment avenue.
3) Maintain adequate liquidity in case of emergencies.
4) Ensure that your dependants are adequately covered in case of uncertainties.
5) Provide for a conservative plan so that if things go well, you have a buffer; else you have a safety net.