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Subbu`s Solutions

Posted On Monday, Dec 22, 2014

Hello Mr. Shankar, investing in equity for long term is always good. Trying to time the market by deciding to wait rather than invest, is a tough call as it may work sometimes and not work sometimes. I always believe one should begin investing now, rather than waiting for later. Ideally, time can be better spent analyzing funds to see their style and if that style suits you. The selected fund should take care of deciding to invest in the market or to hold cash. What is important is that you realize the importance of investing in equities, and stay invested for the long term, which is good.

You should consult with your financial advisor to find out if you are underweight in equities, then you can increase your investments in equities by adopting a Systematic Investment Plan (SIP) method to invest rather than beginning with a large investment.

SIP allows you to average out market volatility. Through SIP you invest a small amount on a regular basis, so when the market goes up you buy less units of the mutual fund and when the market goes down you buy more units of the mutual fund.

Would like to conclude by reminding of the old investment adage – ‘higher the risk, higher the gain’ which holds true for equities since equities are best suited for investors who are willing to take high risk. Here risk is largely defined as volatility of returns than permanent loss of capital. Mr. Shankar, you could also consult your financial advisor for any asset allocation related queries.

Mr. Mohammad I believe you are investing in the above mentioned fund via SIP. For me to guide you to an ideal investment portfolio it is also important for me to know your goals, risk bearing appetite and your earnings. Since I do not have these details my broad suggestion would be as follows:

Equities are considered risky because the returns are volatile, but in the long run it can generate very good returns. Therefore if you can absorb volatility, then you can invest higher amounts in equities to meet your long term financial goals.

On the other hand, if you are not comfortable with volatility then investing larger proportion of your savings in liquid fund may be considered. If you have very low risk appetite then keeping your money in fixed deposit may be considered. Liquid funds can be used to meet your long term and short term goals.

I notice you do not have any Gold ETF’s in your portfolio. In my view one should keep 10-20% of his/her portfolio in gold. Gold helps in diversifying the portfolio and can be useful against any undue risks.

Additional points to remember: when it comes to investing in equities it is important to be patient and invest for long term. I suggest you to consult your financial advisor before taking any asset allocation related decisions.

In today’s interlinked financial markets, a crisis at one end is enough to seed doubts of investors in similar spectrum of products though they may differ in every possible aspect.

Gold ETFs could potentially be on the investors worry list. The biggest issue with that commodity exchange was a regulatory vacuum. However, Gold ETFs are very well regulated by SEBI. There have been a host of measures that have been guide lined by SEBI right from valuation to underlying specifications to mandatory audit of the underlying gold backing Gold ETF units.

The major difference in the commodity exchange and Gold ETFs lies in the structure of their operations. In commodity exchange, two counterparties enter into agreement to buy and sell the underlying and the buyer is reliant on the seller to deliver the underlying commodity to actually transfer ownership from the seller to the buyer / investor.

Please understand that the Gold that a mutual fund buys is held by a custodian company, which is all together, a different company than the AMC. Each gold bar that the custodian accepts on behalf of the fund is verified and substantiated by legal documents stating information on origin, purity certificate, and import details. The gold also gets physically verified on a regular basis. A statutory audit being conducted by the statutory auditor every six months as prescribed by SEBI.

Moreover, Mutual Fund Industry is one of the most strictly regulated industries in India. However, it is important to know that all mutual funds are subject to market risks. You will get returns based on the market performance of the respective asset class may it be equity, debt or gold.

The above statements are largely in the context of Gold, for other holding in equities and debt; redemption will not pose any problem, as there are SEBI mandated guidelines by which the redeemed amount should be received by you. If there is large scale redemption, then price fluctuations may impact certain kind of funds e.g. those funds which have large investments in illiquid securities. In these cases, the NAV may decline more sharply, but you will still receive your redeemed amount.

Mutual Funds are actually excellent vehicles for investments; do not let what happened to Gold ETF in commodity exchange colour your outlook. You are making the right choice with mutual funds!

Subbu`s Solution is authored by I. V. Subramaniam. I. V. Subramaniam is a director of Quantum Asset Management Company Private Limited. The responses expressed here are the personal view of the author. The responses expressed here are strictly for information and explanation purpose only. The responses are meant for general reading purpose and not to be considered as an investment advice / recommendation. The responses are not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or units of the Mutual Fund. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments. The Sponsor, The Investment Manager, The Trustee, their respective directors, employees, affiliates or representatives shall not be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in the responses.

Risk Factors: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Please visit - to read Scheme Specific Risk Factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the scheme`s objective will be achieved and the NAV of the scheme(s) may go up or down depending upon the factors and forces affecting securities markets. Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the Sponsor / AMC/ Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited (AMC). The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.
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