Harshad Chetanwala
Quantum AMC
It is said that 'Customer is King or Queen' whenever we talk about any product in the world. Especially when the number of choice is high it is much more applicable. Let us go few years back and look at mobile phones, the era where limited choice was available and if I am correct we had mobile phones that looked more like cordless phones and the cost of each call incoming and outgoing was somewhere between Rs. 6 to 10. As the years passed with evolution of new technology and more manufactures and service providers today it is altogether a different world when someone wants to buy a mobile phone. I am sure we all do a lot of research to spend our money on such phones, but after all we as customers are ' King or Queen' because of the availability of choices.
When we look at Mutual Funds, there are more than 1,800 schemes across different asset classes. With such wide choice to invest their hard earned money could investors still be called the King or Queen? Well the answer is 'No'. The large numbers of schemes are creating confusion. If we look at Equity funds, there are 326 schemes available for investors, but how do investors who are busy in their own work find the 'right' funds to help them reach their financial goals.
How will investors become the king or queen when it comes to mutual fund investments? Like all other products, be it spending or saving, there is some element of research which customers or investors should get involved in. Here are 4 P's which need to be looked at by the investors to have a strong portfolio for future and identify reliable fund houses and mangers to take care of their investments.
The 4 P's are:
1. People
2. Philosophy
3. Process
4. Performance
People
When investors sign a cheque for investment, they give complete authority to the people from the fund house to do whatever they feel is right. Hence, it is like having blind faith on the people of fund house or fund manager. In such a case it is important to know the background of the fund house and experience of the both fund house and the fund managers. Remember, they are in charge of the money that investors have given to them. If they are not the right people then investors could lose their money and more importantly lose their faith, and may not consider investing in mutual funds in future.
Philosophy
With the world moving fast chasing growth and prosperity, do people bother to think of philosophy today? When it comes to investing, should investors consider philosophy before investing their money with the fund house? The answer is 'Yes', howsoever boring it might sound but when comes to investing Philosophy is critical. The philosophy of the fund house and the fund manager will define whether their efforts are in the interest of investors or not.
Do the funds have an investment philosophy or is it just like ride the wave approach. The cost is one more aspect where philosophy comes in; lower the cost with a sound investment philosophy better it is for investors. The quality of services offered by the fund house also depends on the philosophy of the fund house; it should not be a onetime transaction approach.
Process
How do the fund managers build the portfolio? Which stocks to invest in? Which one to sell? What is the correct price for entry and exit? What parameters are looked at while adding a stock in the universe for portfolio? All these questions are answered in the investment process followed by the fund manager in constructing the portfolio. The fund house and the fund manager can have a great process, but if there is an undisciplined approach followed by either it could result in disappointment. Hence, it is better to be with fund house that follows a disciplined process and do not get carried away by the market movements and become undisciplined.
Performance
After all the 3 P's (People, Philosophy and Process), the last one to follow is the Performance. It is more like the end result of the other 3 P's and not always the beginning for short listing funds. Investors before investing should look at the performance of any fund across different market cycles. If the fund is consistent in different market situations then it is prudent to consider the fund, rather than a fund which is short term performer. Investors should invest for long term and continue to be invested in funds with proven performance record over years. They should not get carried away with sentiments when things are not working with such funds because they know about all the 4 P's of the funds and trust them.
The challenge is the information on all the 4 P's are not always easily available. Investors should ask about 4 P's to their consultants, advisors, fund managers and also visit the websites of the fund houses where this information is available and then decide to invest instead of simply handing over the investment.
A King or a Queen has information about everything which matters to their territory, investors are King or Queen and their investment in mutual fund is one of their territories. Hence keep in mind the 4 P's, People, Philosophy, Process and Performance of Mutual Fund investing and ensure that you - the Investor rule forever.
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