9 things Investors must do for superior portfolio performance

Portfolio Management requires a partnership between the Advisor and the Investor and while the role of the advisor can be discussed in detail, there are some discipline required from the investor as well. I am listing below few points that investors can adopt to help themselves:

  1. Look at the bigger picture: Most of the times we spend a lot of times debating about a scheme in the portfolio, which is not doing well or one which has given higher returns than the others. What we ignore is the ‘Portfolio returns’, which is the most important number to track. Of course, the schemes are important but that should be the job of the advisor, when and how to deal with the scheme.
  2. Understand the concept of risk adjusted returns: The best-case scenario for everyone is highest risk with lowest return and therefore people end up with unpleasant experience with investing in the markets. The simple theory is that anything which can give you more than a Fixed Deposit will have risk. Understand the risk, identify your portfolio needs and get an optimum portfolio made which can deliver the returns with minimum risk.
  3. Avoid too frequent portfolio updates: This habit of constantly watching the portfolio is almost impossible to break, but once done; it allows the breathing space to the portfolio, the advisor and the investor. A multi-year portfolio can easily be viewed once a quarter and reviewed once in six months, unless there are changes required.
  4. Don’t fall trap to guarantees or capital protection: If anyone really needs capital protection then he should have all monies in Deposits. To search for guarantees itself suggest your risk profile is low, hence don’t try and experiment with your hard-earned money.
  5. Don’t compare yourself or your portfolio, you are different: Every investor has a different behavior towards market events, towards risk and towards life. Don’t compare yourself as you are unique. You will react differently to the same market situation and therefore your portfolio construct will be different, hence producing different results.
  6. Don’t base your decision on recent performance: 3-5 year is a reasonable time to measure any returns. Don’t get carried away with high or low returns of any financial product in the recent times.
  7. Write your Investment policy statement: It really helps when you sit down with your advisor and pen down your objective for investing, your asset allocation, your expected returns and the worst and the best-case scenario is mentioned. Review this regularly and make changes if required.
  8. Keep the trust going: If you do not trust your advisor the you should immediately stop dealing with him/her, but if you do, then allow him/her to implement the strategy and let if work over a considerable period. Share as much financial information as possible, so that an optimum solution can be tailored made.
  9. Don’t take advice of people who have nothing to do with the outcome: This is self-explanatory.

Regulatory – Insensitivity or Misunderstanding

India is a growing economy and therefore it is expected that the per capita incomes will rise in the coming decades. This also means that there will be growth in Savings and impetus to financial investments will be there. Retirement planning will become important as the young brigade today wants to earn handsome and retire early. This puts focus back on the regulatory in various facets of the investment industry i.e. stock markets, mutual funds, insurance and also real estate (especially when REIT’s are round the corner).

What is the Job of a regulatory?

In short, their role is to ensure that no investor is given a raw deal and the investment experience is positive.

When does the investor experience become positive?

When his financial needs are understood, strategies to fulfill those are implemented and monitored in a client-beneficial manner.

What has been the reason for not so good client experience?

The organizations involved in financial services look up to their monthly/quarterly performance and with high costs of employment, the focus has been on revenue rather than quality of advice.

The regulators in India have seen three phases:

  1. Silence phase: Since the emergence of financial services in 2001, there was mass selling quote unquote “mis-selling” as well and regulator at that time let things happen. Resulting lot of people had a horrible experience of investing.
  2. “I am here” phase: when lot of complaints started rising, these regulators did some patchy work by signalling that they are present. These changes did not address the real issue and the distributors/advisors of these financial services made merry.
  3. “Mad hunting” phase: Now the regulators are trying to copy some country in the world and making useless changes in them and forcing the issue. This is killing not only the genuine advisors, but the advice as well. The professionals may gradually choose much greener pastures and start to find a loophole within the system to sell products.

A congenial environment means where there is coexistence of the advisor and the client where value add happens for the client and survival of the advisor is also ensured.

What is Value Add?

It is not always visible on paper because many a times advisors also recommend clients “what not to buy or invest in”, other than telling them what to do. How does the regulatory acknowledge this fact? 

Financial Education is an integral part of advisor-client relationship and how does the regulatory acknowledge this?

In mutual fund industry in India, the regulator wants to differentiate between the seller and the advisor. How can they exist in isolation with each other. Making things complicated isn’t going to benefit anyone. The regulatory all across have to understand the reason why anybody will hire an advisor. It is not for the fact that all clients do not know anything about money, they have earned it and know more about it than the advisor. The biggest reasons for hiring an advisor are “transfer of decision making stress” and “detachment from sentiments“.

The day regulatory understands this, it will be able to define the correct position of an advisor. By its measures, various regulatory bodies are already making a statement that the common Indian investor is intelligent or dumb enough. How can a regulatory be judgmental on the acumen of the masses and treat all intermediaries like they are all demons.

I wonder the reason why there is no regulatory in the medical profession in India, which can look after the interests of people taking services of Doctors and Hospitals. There is a strong internal body in medical services, which takes actions as they deem right. If government is happy with that setup, then why to look at financial services in isolation.

I do not understand the difference between a distributor and an Advisor. How does the regulatory control the intent here…..no way. The premise is to control action and even in this setup, one can give wrong advice. In the longer run any business association can only survive if the client sees value add happening.

Every client is smart enough to understand this and a genuine advisor will always look at growing his business with happy and satisfied clients. One with shortcuts wont exist for long, if the regulatory brings in smart measures. For e.g. if the brokerage on all MF products is the same, then no advisor/distributor has any benefit of selling a capital protection fund or a hybrid close ended fund just for the sake of revenue. Merit should be the filter, not revenue. By allowing variety of revenue models to flourish, the regulatory on one hand has left holes in its own sheets.

Look at the real estate regulatory which has been formed after the damage has been done. The revenues in so many places was in excess of 10% of the deal amount, and even a road side street guy could become a real estate broker. Whats the fun when many people have even lost their retirement money with some spurious builders.

Look at Insurance for example, where the banks continue to sell it because the regulatory has had numerous loopholes which the intermediaries have taken full advantage of. Lets look at the ULIP fund performance for instance, where the returns of the funds are depicted as the returns for the clients which is false. The ULIP fund NAV performance are half truth as they do not depict the policy returns, where much of the premium is paid as charges. I wonder why should a ULIP, even be a product in insurance and upon that we have the opaque structure of the traditional policies, where the returns have been dismal. Some studies show that on a past 20 year period, when the Govt Bond rates were even higher, the IRR (internal rate of return) on these traditional policies was less than 6.00% p.a.

There the regulatory felt that the policy buyer should know the facts, but a different perspective is adopted when it comes to mutual funds, which are more transparent in comparison and are a better route for investments for small to ultra HNI.

No rules are there for private placement Venture Funds, real estate funds and other alternate products where the transparency is quite low.

Look at the divide between the MF industry itself. The regulatory now wants the distributor to get a declaration signed saying “the distributor may not be acting in your best interest” but at the same time the Fund Manager who is going to manage the fund may still earn crores of salary without providing any return or any such declaration.

I hope sanity prevails and we have controls on the systems rather than extinction of a community, which is essential in the current scenario our country is passing through.

“As long as wealth is there, wealth advisory will remain”


Here it comes again – Equity Euphoria

It happens repeatedly but we always say the most dangerous words of investments i.e. “this time its different“.

We have always been told that higher the risk, higher the gain, but unfortunately we have short memories, when it comes to risk. The general perception of risk becomes quite conservative in an equity market run-up. Today it would be difficult to tell investors that a correction from here can also mean we can be back to 20000 levels. There is also no denying the fact that if liquidity hides away from fundamentals then even 35000 could be a possibility sooner than later. The view on fundamentals is my personal view and maybe some may differ on grounds of what the government is doing. Well I would again put it as Euphoria of expectations as we 


The above chart typically represents the investor behavior at various points of the equity cycle and there are some numbers we must look at.

Index P/E on 7th Jan 2008 P/E on 6th March 2017
Nifty 50 28.25 23.27
Nifty Midcap 50 24.41 34.20
Nifty 500 27.06 26.65
Nifty Smallcap 50 Not available 52.23
Nifty Banking 26.73 29.33

It could also be a possibility that the P/E (price to earnings multiple) advances up further; but given the history of our markets, we haven’t seen it above 29 in last two decades. Also the fact that mid and small cap are trading at their peak P/E’s. The markets can certainly remain erratic longer than we believe them to be, but the underline risk at a higher P/E; will rise substantially.

Let’s now look at the market fall from 7th Jan 2008 to 31st October 2008:


Closing on 7th Jan 2008

Closing on 31st Oct 2008


Nifty 50 6279 2885 -54.05%
Nifty Midcap 50 3984 1255 -68.50%
Nifty 500 5500 2226 -59.53%
Nifty Smallcap 50 4055 1122 -72.33%
Nifty Banking 10391 4522 -56.48%

The premise of investments is not the returns alone, it is also the risk that comes along and the current P/E does not give much reward for the risk taken (as per past history). The chart below supports my statement. If you see at higher P/E the returns starts falling off over 3 year period and further on for 5 year as well.


The 3 year return drops to almost 7.00% and then lower post the P/E crosses 23. (source: capitalmind.in)

Lets also look at what happened people who entered in 2009 March, given a 5 year holding.

Index Closing on 31st March 2009 Closing on 31st March 2014 Gain
Nifty 50 3020 6704 121.99%
Nifty Midcap 50 1165 2465 111.59%
Nifty 500 2295 5225 127.67%
Nifty Smallcap 50 1007 2013 99.90%
Nifty Banking 4133 12472 201.77%

It would still be left to the investor, but on face value this is not the time to increase the equity allocation.

Euphoria always has the potential to attract people towards recent returns and get into the markets. This recency bias has more often than not, been the undoing.

Equity investing is impacted by three parameters, as is reflective in the diagram below:

Equity thesis

In the shorter run, markets are driven by sentiments and liquidity and therefore unanalysable. However value (fundamentals) drives markets in the longer run.

Short term & long-term will have different meaning for a trader and an investor. For a trader sometimes, 3 hours becomes long term but an investor should look at fundamentals. Look at what planning commission defines time horizon as:

  • Short Term:  5 Years
  • Medium Term:  5-15 Years
  • Long Term:  15 years and more

Therefore equity requires the 3 legs to be executed properly:

  • time to start investing
  • time to book profits
  • time to stay away

None of these is lesser important than the other.

It takes 2-3 cycles to understand the risk vs. return trade-off, so one can either spend that much time in the markets to learn or on the other hand he can trust his advisor to help him participate in these cycles in a much controlled manner. He will never be able to predict the markets for you, but can effectively control emotions, which prove to be the biggest folly.

Happy investing!

The cost of Investing in India

Recently the financial regulator cracked its whip on the Mutual Fund Distribution by making it compulsory for the statements to carry the Absolute value of the Gross Brokerage paid to the distributor.

While everybody welcomes the transparency being brought, the manner and the intent is not only biased but just shows how the helpless the Individual Advisors are, who always bear the brunt of the regulatory ire. There is no doubt that there are some unscrupulous parts of the industry which need to be tamed; but to measure all on the same scale is not correct.

The bottom line is that the people who provide definite value add to their clients, need to keep their head held high and face the change. “Value will prevail”

Let’s look at the larger picture here, as regards to the costs involved. The regulatory has very smartly told people the kind of margins that exist in the industry. So broadly the trail commissions in mutual funds of various categories are as follows:

Debt Liquid: 0.05% – 0.25% per annum

Debt Short Term: 0.25% – 0.75% per annum

Debt Others: 0.10% – 1.00% per annum

Equity: 0.75% – 1.75% per annum

Now the question to every investor is “How much should your advisor earn?”

Okay, there can be debates around this but lets stress a bit more:

The bank where you keep your hard-earned money gives you 4.5% – 8.00% today in the deposits. How much is the average  borrowing cost? …..say about 7.00%. The lending rates:

Home loan: 9.00-9.50%

Loan against property: 9.50%-11.00%

Business loan: 12-13%

Personal Loan: 14-16%

Let’s now look at Insurance policies where products are sold by fooling clients and alluring them of a high return even on a traditional plan. A traditional plan can invest its corpus only in Govt securities where the maximum rate of a G.Sec is 9.00%. The cost of the Insurance, brokerage, etc is 3-5%. So what’s the return?

Let’s now talk about real estate. The known brokerages:

Secondary Market deal: 0.75% – 2.00%

New construction: 3.00% – 12.00%

Not to forget the margins that exist within the deals and the quantum involved in real estate.

Out of all the above which is the one professional, who is not one time transactional person…..it’s your mutual fund advisor. He is the one who will grow, if you grow. He is the one who will be with you in ups and downs of the markets.  So let’s give a wider term to this guy….he is your Independent Financial Advisor.

So cost is everywhere and one can’t avoid it. You can’t be expecting the advisor to give free advice, but you should expect him to be reasonable and that’s the ultimate key for a healthy association….being reasonable at both the ends.

The illusion of Control

Few days back I met a prospect who had a sizable portfolio. There was huge opportunity because the reference was very strong and I had all the ingredients to make it to the list of his advisors, but it did not happen. I would attribute this opportunity loss to maybe my own selling skills or maybe it should be left for the readers to decide.

When I met this gentleman, my first question was “what is your expectation out of your portfolio and out of your advisor?” The answer to the same set the premise of a long meeting which lasted about 3 hours. The reply was “I need minimum 15% annualized returns from my portfolio and my advisor  should help me achieve higher”.

I asked him again about his returns so far and he replied that he has been consistently getting 15% and above. On the face of it I already knew this portfolio was not coming to me and the reason will be shared further. I then asked him for his oldest investment, which he said was a scheme bought in 2003. The calculation showed 17% annualized gains since inception and it was tremendous. I almost believed it to be the number for all his portfolio, but then he shared numbers, and I started getting a bit confused.

Most of the mutual funds were shown as bought in the last 2-3 years and no records before that were available. Then I asked whats the return on the entire portfolio. He replied “should be more than 15%”. When we opened the statement it showed a C.A.G.R. of -2.68% and took him by a surprise. So many times we don’t see the relevant numbers on the portfolio statement and that’s what makes us live in the false world of illusion.


How does it matter whether a scheme is earning 18% if the overall return is either not possible to calculate or is seriously below par. Also the fact that the above mentioned client was 96% into equity and not willing to see any downside, gives you a clear picture that what we believe is in control, actually isn’t. Just a 15-20% correction in equity will make him change his thought process.

This illusion of control has caused many investors to leave the financial products and enter other asset classes, where again they live under false beliefs about their investments. “I believe that my investments are delivering 15%” and “My C.A.G.R. calculation on my entire portfolio is 11%” are two different things. What you believe has to be supported by evidence.


So what’s the best way to have control?

  1. I personally believe in outsourcing and there in comes the role of an Investment Advisor. He draws the correlation between risk and returns for you and constructs the portfolio based on the risk you can absorb.
  2. The burden of decision should be transferred to an advisor because various biases can restrict the investor to take the right decision. For e.g. stop loss, when to buy and when to sell, how to react to market news, when to act and when not to are all the matters which are best left to the advisor.
  3. Portfolio returns are the most important number and you should know your portfolio returns, not individual scheme performances, which to my mind is irrelevant
  4. Diversification is good, but over diversification is a killer. Further, diversification between asset class is of more relevance. Diversification within the same asset class beyond a point doesn’t change the outcome much
  5. Higher returns come with higher risk, there isn’t any shortcut
  6. Remember, the advisor  doesn’t create returns, he just manages your behavior and risk. Returns are generated by markets.

I can go on and on and still not find a fixed set of rules for investing as there aren’t. There are guidelines and which may be different for different people. Investment is a journey not a destination. You don’t make returns when you invest, you make them after you have gone through the boring cycle of staying put with your strategy.

5 Steps to tame the ‘Term Plan’

We all get to learn from various sources that the best way to cover the economic risk of ‘dying too early’, is to buy a Term Plan.


Yet so many other plans are being sold on premise of savings. Many a times I have heard people claiming that they were told by the Insurance Seller that the life cover is free and the major purpose of the plan is to increase your savings. Of course the very fact that so many people subscribe to ‘with profits’ policies explains the kind of financial literacy we have in the country. There must be some good unit linked plans but since the time, the commissions have been lowered, the sales for endowment plans have substantially gone up. ‘Endow’ means ‘to give’ and they live up to their name as the client is the only one who gives here.

On the other hand, people who buy Term Plans and with more and more buying online, it is important to note the following 5 points:


  1. Tell the truth, the complete one: While you are applying for a term plan remember to disclose all facts asked, and some important ones even if not asked. For e.g. I had a Lung Infection (technically it was Tuberculosis without the cough) in 2014; and in 2015 I had applied for a term plan. While filling the form I thoroughly went through the medical questionnaire and filled all details including my stay at the hospital, medicines I consumed for 6 months, my reports, etc. On the Financial disclosures, I mentioned each and every policy I had and also the family medical history. It is important to understand that the onus of declaring the facts lies with the policy holder and therefore do not take this lightly.
  2. Keep your communications in recordAll the communications, forms, etc that you exchange with the insurance company, should be kept in records (hard copy or scan). These should be filed or put in a computer folder and the details should be shared with reliable family members or friends. The repository account (a kind of demat account for Insurance Policies, is not a bad idea). This allows you to have a digital policy and get rid of your policy file, which at times can be misplaced.
  3. Term Plans should be bought with the longest tenure possiblePeople generally buy it till age 60, believing all their liabilities will be over by then and therefore they don’t need it. There are two views against it, one is the fact that since the premium will be negligible portion of the sum assured, it makes sense to continue and the sum assured can be passed on as a legacy after your death. Secondly, please don’t forget your spouse, kids are not the only responsibility.
  4. Keep a track of your premium payment: My experience has been that one should not let the reminders be the onus of the Insurance Company. Some companies are least bothered about it (don’t know whether it is purposely for term Plans or a service mindset problem). Remember, nothing binds these Insurance companies legally, to remind you of your Insurance Premium. If you have a Google account, use the google calendar and set yearly reminders. Also do remember that the premium should always be paid before the due date normally. There is a 30 day grace period but best is not to use the grace period. In case there is an eventuality after the due date and in the grace period, the policy claim can land in a ‘less clarity zone’ and it is better to avoid it.
  5. Make notes for the family: The very reason you bought a term plan was to insure your family’s financial future. Imagine a situation, where you are no more and your family has to go and file a claim. Now make notes of steps to follow, mention name of friends who can help, write clearly that a fee should be paid (this will get the best help for your family), and keep a check on the fact that nominee details are updated and no spelling mistake is there. These hygiene checks will help you surely.

I hope the above will help you in managing your Term Plans well. In case you need any further clarity, please visit my page on FB, called ‘moneysabha’.

~ Anil

Advisor’s fate is tied to only the client

In the 4 years I have been an Independent Advisor, I have seen many instances where the fate of the industry has been linked to the cost structure. Any adverse step by the regulatory can have deep impact on the existence of the advisor community, but one cannot conduct any profession with a ‘doomsday’ belief.

We Indian’s habitually have been trained not to pay for advice and therefore most of the Advisors find it best to have the brokerages from the product manufacturers. This may lead to some conflict of interest but over a long-term period, the investor remains with an advisor for his value add and the true intentions cannot hide themselves for too long.

My personal belief is that this profession can only be taken up by serious professionals, if there is at least 0.75% – 1.00% earnings on the money being advised (ideally some portion should be linked to reasonable return delivery). Even a real estate advisor earns much more for a one time transaction, so think what should be the earnings of an advisor who is responsible for creating a strategy, implementing it, managing the regulatory nuances, reporting taxation of investments, monitoring the strategy, advising what not to do and biggest of them all, managing client sentiments. Also the fact is more often than not, the financial advisor is giving advice on other asset classes, which are followed by the investors.

Once the client acknowledges the value add by the advisor, then it’s immaterial whether the product manufacturer pays the amount or the client himself.

I fully believe that the acknowledgement of the value add has to come from the client. He needs to evaluate his experience with the advisor, not only in terms of returns but also in terms of the factors like communication, empathy, education and integrity. Just remember the times when the markets were not good or an event happened and think how your advisor reacted or helped you not to overreact. Think how many times your advisor has asked you not to invest, even while you have had the cheque ready and foremost, look at your portfolio returns over long-term periods. The only caution here is the fact that portfolio returns are to be read with the risk profile, portfolio objective and the expected returns.


Every advisor is the reflection of the behavior of his clients and if they start understanding and acknowledging the value of the advisor, then life at both end are simplified and the advisor can take better calls on the portfolio. A defensive approach is not bad, but then the real benefit is only when your advisor thinks rationally and acts prudently by undertaking actions beneficial to the portfolio.


No regulatory can define the way you value your advisor. It’s only you, who can either term his presence as useful or as useless. A useless relationship would never find legs to move too far and a mutually beneficial relationship won’t be affected by the noise around. A regulatory is best at keeping checks and balances in place, but if it starts influencing behavior, then its purpose is self-defeating.

In this entire equation, Investor is the most important link but both the advisor and the investor, jointly need to work towards the TRUST. One who has to live the trust (advisor) and the other who has to be considerate to acknowledge the work (the investor), both have to play their parts equally well and with Integrity. Cost will never be the deciding factor for the future of this industry, the relationship will be judged by the stakeholders i.e. the Investor and the Advisor.

An advisors existence is due to the Investor and therefore the advisor is expected to act with complete integrity at all times. He cannot exist without the clients and therefore one song he must remember is “Mera toh jo bhi kadam hai, woh teri raah mein hai”. The literal meaning of the song is ‘all my actions are towards your benefit’. There is an old saying “Integrity is doing the right thing, even when no body is noticing”.


So the common link that ties this industry is the relationship between the Investor and the Advisor, rest can adjust itself.