Top equity mutual funds in India

Top equity mutual funds in India

Before we talk about top mutual funds in India, we must also understand the process of arriving at these mutual funds.

There are thousands of funds and selecting 3-4 funds that meet your objective is a challenge.

Most investors have “look at the past record” approach for selecting equity mutual funds. This may not be a complete answer.

For all practical reasons, you should avoid sector based funds and international funds. Sector based funds expose you to unnecessary sector risk and international funds are able to deliver only when INR depreciates. Both these situations create a unique risk and may be avoided.

Although past performance is not the only factor it is still an important factor to consider. A fund should prove its merit over a period of at least 5 years. Therefore, a fund that is recently launched may be avoided.

Now that ground rules are laid, here are the aspects to look at closely while short-listing the funds. You have to source all the funds in specific categories i.e. large-cap, mid-cap, small cap, multi-cap and tax saving funds. If you do not perform analysis basis specific category of equity mutual fund, there may be an overlap of securities that will be detrimental to your portfolio.

Criteria no. 1: 5-years Alpha

In simple terms, how well the fund has performed better than the benchmark. A large-cap category can have the benchmark as ‘Nifty 50’ whereas others can have ‘Nifty 500’ as the benchmark. Any funds whose 5-year performance is less than the benchmark may be excluded. Think about it, if the fund manager is not able to beat the benchmark, the manager is destroying value rather than adding value to the investor’s portfolio. Basis the recent SEBI’s requirement to align mutual fund schemes as per the fundamental attributes, various mutual fund houses are combining schemes that have the similar fundamental attributes. This will make calculating alpha redundant for some time since good and bad schemes combined together may indicate above average performance but that may not be a correct assessment. SEBI circular

Criteria no. 2: Information ratio (IR)

Information ratio is a measure of the risk-adjusted return. Information ratio shows the consistency of the fund manager in generating superior risk-adjusted performance. Higher the ratio better it is. IR is expected active return divided by tracking error, where the active return is the difference between the return of the security and the return of a selected benchmark index, and tracking error is the standard deviation of the active return. IR calculation may be misleading due to the recent changes to combine mutual fund schemes based on fundamental attributes.

Criteria no. 3: Asset Under Management (AUM)

As a rule, you should probably avoid funds with assets less than Rs 100 crores simply because of the relatively higher expenses associated with small funds.

Small funds may not survive or may undergo changes in the objectives in the search for greater acceptance in the marketplace. Whether through asset growth or other factors, over time a fund’s return tends to move towards the average.

Criteria no. 4: Fund manager tenure

A fund manager manages a fund. He takes a call on what to buy and what to sell and also in what proportion. Fund’s performance is directly linked to the skill of the fund manager. Therefore, the tenure of a fund manager is an important factor to consider when selecting an equity mutual fund. When managers change, a wait-and-see policy is usually appropriate.

Apply these criteria’s to filter out relevant mutual funds. You will find only a limited set of mutual funds in each of the five equity mutual fund categories.

Here is a list of funds in each category after considering the recent combination of mutual fund schemes.

Large-cap funds

  • Aditya Birla Sun Life Frontline Equity Fund
  • SBI Bluechip Fund

Large-cap funds and mid-cap fund

  • Franklin Templeton India Prima Fund
  • Mirae Asset Emerging Bluechip

Mid-cap and small-cap fund

  • Franklin Templeton India Smaller Companies
  • DSP Black Rock Small and Mid Cap

Multi-cap funds

  • Mirae Asset India Equity Fund
  • Aditya Birla Sunlife Equity Fund

Tax saving funds

  • DSP Black Rock Tax Saver
  • Axis Long Term Equity

The list of the top mutual fund is not an end but rather only a starting point. Often people get too aggressive when the markets are moving up but having a mix of assets ensures a reasonable return in all seasons. A long-term first-time investor may also evaluate Index Funds with the lowest expense ratio.

You have to structure the portfolio in such a way that your overall investment portfolio suits your behavioural aspect. You don’t want to have a heartache due to portfolio fluctuations 🙂

Why you should have a financial adviser ?

Why you should have a financial adviser ?

In India, working with a financial adviser is still not a preferred way to manage personal finances. We get informal advice from mutual fund or insurance agents on various products. We rely on these agents because we do not want to pay for financial advice. We invest in the products and later regret our financial decisions. Bad financial investment decision often leads to dis-interest in financial markets. Then, we tend to prefer keeping money in just fixed deposits. 

A pleasant experience of financial market is critical to growing your wealth. You need to acknowledge the difference between an agent and a financial adviser. There are various ways you can deal with financial services providers:

Brokerage firms

Generally these companies offer mutual funds, PMS and direct equity. The primary reason these companies exist and grow is brokerage through distribution of products. 

Wealth Management Firms

There are numerous wealth management firms that operate in India primarily focused on clients who can invest more than Rs 2 crores. These companies primarily offer mutual funds and PMS. These firms also earn through brokerage.

Banks

Banks are major distributors of financial products. In fact any financial product manufacturer would first reach out to banks for pushing the sales of new offering. Most of the banks offer mutual funds and insurance products. However, banks also earn only through brokerage.

Mutual Fund/Insurance Agents

There are thousands of these agents selling financial products especially MFs, insurance policies, LIC etc. Again these agents also earn through brokerage. 

Financial Advisory Firms

As per the guideline of SEBI, any firm or individual who claim to be financial adviser, have to register with SEBI and get investment adviser license. These firms or individuals are regulated by SEBI and have regular audits. Additionally, these firms or individuals cannot make money from commissions, hence avoid conflict of interest with the client. 

Most of the brokerage houses, banks and wealth management companies present themselves to be advisors but they aren’t. Brokerage houses, banks and wealth management companies push financial products to earn brokerage and have no interest in client’s objective. These firms do not care about quality of clients but just care about ‘quantum of clients’. On the other hand, mutual fund agents and insurance agents cannot afford to be selective because of ruthless competition and hardly any differentiation. 

Select a financial adviser after thorough understanding of their processes and approach. Make sure that you get unbiased advice from the financial adviser. This is possible only when the source of revenue for the adviser is not linked with the financial product.

How to select the right Mutual Funds ?

How to select the right Mutual Funds?

There are thousands of different schemes from various mutual fund schemes and selecting the best ones can sometimes get hard.

Most folks ask friends and family or research popular online websites to get the top fund recommendations and invest in the top-rated funds.

The biggest mistake that mutual fund investors can make, is selecting mutual funds only on the basis of past performance.

Then there are some who consider the star ratings given by various research agencies. These star ratings can be one of the factors to look at, but there are other important parameters that one should also consider before finalizing a mutual fund portfolio.

The most important step in selecting mutual funds is to first have an investment goal and timeline i.e. how long do you plan to stay invested in that fund to meet your goal.

A fund selection done without an investment goal may not give the best results. You should know the reason for your investment, how long you can stay invested and at what stage you will re-allocate / redeem before you make your first investment.

Once your investment objectives are finalized, you may evaluate a fund based on the following parameters:

1.) Performance Ranking

More than the recent or long-term performance of any scheme it’s ranking among peers is very critical.

  • Firstly, you must compare the mutual fund with its peer group.
  • Secondly, you must compare the performance of the scheme with its benchmark.

The fund, which has performed well in one quarter, may not perform well in the next quarter. Funds with a good long-term top quartile performance are far superior to a fund scheme, which has one top position and one bottom position.

2.) Total expense ratio

As a fund starts to do well it starts to attract a lot of investors, and as its assets increase it should keep dropping its asset management charges.

Look at well-managed funds with charges below 1.9% p.a. – there are many.

Though mutual fund’s total expense ratio has been capped by SEBI, still lower the fees, the better it is for you unless you get some extraordinary return by paying higher expenses for a specific fund.

3.) Fund manager tenure and experience

Fund managers play a very important role in the fund’s performance. Though managing a mutual fund is a process-oriented approach, the fund manager is still the ultimate decision maker and their experience and viewpoint count for a lot. You should know who the fund manager of the scheme is and what their past track record is.

If you find that due to change in the fund manager there is a considerable effect on the fund’s performance, which does not suit your risk appetite then you may decide to exit from that fund.

4.) Scheme asset size

The lesser the assets under management (AUM) in any scheme, the riskier it’s likely to be. This is because you don’t know who the investors in the scheme are and what quantum of investments they may have in that particular scheme. An exit by any big investor from the mutual fund may impact its overall performance and the remaining investors in a scheme will have to bear the impact. In schemes with larger AUMs, this risk gets minimized.

It is recommended to invest in 3-4 funds that match and/ or complement your investment objectives. This is to avoid dependence on any one fund and avert risks of market downturns.

In addition to these, there are some additional indicators, which you can look at if you are inclined:

Alpha

This is a measure of a funds performance with respect to the index. If an alpha is 1%, it means the fund has performed 1% better than the market performance.

Beta

This indicates the level of volatility of a fund with respect to the market index. The larger the beta of a fund, the more volatile it will be.

Information ratio

The information ratio (IR) is a ratio of portfolio returns above the returns of a benchmark – usually an index – to the volatility of those returns. The information ratio identifies whether a manager has beaten the benchmark by a lot in a few months or a little every month. The higher the IR, the more consistent a manager, with consistency being an ideal trait. Conversely, the lower the IR, the less consistency.

Standard Deviation

This indicates how much the current performance of the fund is changing its past performance. A high standard deviation may not be a good indicator for the fund.

Sharpe Ratio

This ratio indicates the source of a funds performance and how much of risk the fund was exposed to, to get higher returns. The larger a fund’s Sharpe ratio, the better will be its risk-adjusted performance.

While you may shortlist mutual funds based on the above parameters, it’s a good idea to have a financial advisor on retainer who you can use as a sounding board to discuss potentially good and bad funds.

What are Equity Mutual Funds ?

What are Equity Mutual Funds?

If you do not have the time or requisite skills to evaluate good quality stocks on your own, you can invest indirectly in stocks via equity mutual funds.

Every mutual fund scheme has a specific objective and invests in assets accordingly. Equity mutual funds invest only in stocks of various companies.

Most equity funds are created with the objective of generating long-term growth and capital appreciation. The investing horizon for equity products is also longer, given that equity as an asset class may be volatile, in the short term.

However, all equity funds are not the same and their investment objectives vary. Classification of an equity fund is based on the type of companies a fund invests in. Here is a broad category of equity funds you must be aware of:

Large-cap funds

Large-cap funds are, typically, the least risky among equity mutual funds. A large-cap equity fund invests primarily in companies that are among the least volatile as they are usually mature businesses.

Mid- and small-cap funds

These funds are riskier than the large-cap funds. They invest in smaller-sized companies that are in their growing stages. Since these companies are in their growing stages, their share prices can get volatile in an uncertain market. Their stocks typically rise more than large-cap funds in rising markets, but also usually fall more than large-cap companies in falling markets.

Diversified equity funds

These funds invest across various sectors, sizes and industries, with the objective of beating a broad equity market index. These funds feature lower risk as the benefit of diversification kicks in and are suitable for investors with long investment horizons. The underperformance of one sector or stock may be made up for by the out-performance of any one or more of the other sectors or stocks.

There are other categories of equity funds such as sector funds, thematic funds, and special situation funds. One needs to be careful while investing in sector-specific funds because if the entire sector underperforms, your fund will be badly hit.

Remember: Invest in equity mutual funds only if you can stay invested for long period of time. The longer you can stay invested, the greater will be your returns.

Why should you invest in a debt mutual fund?

Why should you invest in a debt mutual fund?

Debt or bond mutual fund schemes are completely different from equity mutual funds. Not only are they much safer but also the risk and volatility associated with them are also low. Therefore, their returns are also lower when compared to equity funds.

These mutual funds invest in government bonds, securities and other cash related products.

What are bonds?

Companies or state and central government bodies issue bonds to raise money for various projects. Let’s take the example of a government bond.

Every government needs money or capital for financing infrastructure projects and other needs. i.e. they need money to build roads, railways, hospitals, and other public utilities.

The taxes we pay as citizens are usually not enough to fund these initiatives. Regular taxes go towards regular expenditure including government official’ salaries, travel and other operational costs.

This is why they issue bonds. What it essentially means is that if you buy a government bond of Rs 1000, the government guarantees to return back your money after a certain period of time at a fixed rate of interest. Since governments usually don’t default on their loans, government bonds are considered as relatively safe investment options.

Types of bonds

The bonds are also of different types, namely short, medium-term or long-term bonds. If you have to build a highway, one will incur a large cost right now and the money will be recovered via tolls in the next 20 to 30 years. Thus the government will issue long-term bonds to fund such capital-intensive projects.

On the other hand, if the government requires capital to build schools or hospitals, the cost may be recovered in a much shorter time frame – and hence will issue short-term bonds.

Mutual fund schemes, which invest in, and buy and sell these bonds are known as debt or bond mutual fund schemes.

There are various bond funds, which can be used to meet specific financial objectives. Bond mutual funds invest in debt securities, money market securities or in longer-term debt securities, or a combination of the above.

Ultra Short Term Bond Fund or Liquid Funds

These funds invest in securities maturing in less than 1 year. The primary source of return is interest income. They seek to provide safety of principal and superior liquidity.

Suitability: Investment horizon of less than 1 year.

Short-Term Funds

These funds combine short-term debt securities with a small allocation to medium-term debt securities. Short-term plans earn interest from short-term securities, interest and capital gains from medium-term securities. The volatility in returns will depend upon the extent of medium-term debt securities in the portfolio. Short-term funds may provide a higher level of return than liquid/ultra-short term funds but will be exposed to higher risks.

Suitability: Investment horizon of 1-3 year.

Medium-Term Funds

These funds combine medium-term debt securities with a small allocation to longer-term debt securities. Medium-term plans earn interest from medium-term securities, interest and capital gains from medium-term and long-term debt securities.

Suitability: Investment horizon of 3-5 year.

Long-Term Debt Funds

Market interest rates and value of a bond are inversely related and any fall in the interest rates can cause a gain in a bond portfolio and vice versa.

Therefore in a falling interest rate scenario, when investors in most fixed income products face a reduced rate of interest income, long-term debt funds post higher returns. The extent of change in market prices of debt securities is linked to the average tenor (duration of investment) of the portfolio – higher the tenor, greater the impact of changes in interest rates.

Suitability: Investment horizon of more than 5 years.

For all practical reasons, creating a portfolio with a combination of ultra-short term debt fund and the short-term fund will meet the objective of most of the investors.

Should you invest in Exchange Traded Funds (ETF)

Should you invest in Exchange Traded Funds (ETFs)

Exchange traded funds or ETFs as they are popularly known, are a special type of low-cost funds that invest in stocks of companies that are part of an index like the Sensex or Nifty 50.

The Sensex is short for sensitive index and comprises the top 30 stocks of all the companies listed on the Bombay Stock Exchange. Similarly, NIFTY comprises of the top 50 stocks listed on the national stock exchange. A Nifty ETF will invest in only those stocks, which are part of the Nifty 50.

Since the selection and weight is decided by the index itself, there is no active manager to manage your investments, hence management fees of ETFs are very low.

However, the returns are also directly linked to the stock market – If the market rises by 10%, the ETFs will rise by little less than 10% and if the markets fall by 20%, the ETFs will also fall by a similar percentage.

So, what’s the difference between an ETF and a mutual fund?

A mutual fund has a fund manager who actively manages the fund (i.e. buying and selling selected stocks based on their individual assumptions and the fund objective).

An ETF, on the other hand, is passive. It buys all the shares that comprise an Index. E.g. the Sensex or Nifty and does not require active management.

So when you buy a Sensex or Nifty ETF, you are actually buying small portions of the top stocks listed on these exchanges.

Since they don’t buy or sell stocks actively unlike the mutual funds, they are known as passive funds.

In developed countries, ETFs are very popular and are gradually even taking over mutual funds. In the years to come as the capital market in India matures, ETFs may turn out to be a better equity investment option.

ETFs are better options in comparison with mutual funds because of the expense ratio. If you were to invest in a large-cap mutual fund, the cost would range between 1.25%-2.50% p.a. However, if you select SBI Nifty ETF, the cost is 0.07%. Mutual funds may claim to beat the market but that claim is debatable.

Investing in an ETF and not worrying about the ‘best’ mutual fund is a good option for the first-time investor.

Investing in Gold

Investing in Gold

Indians are among the largest retail buyers of gold in the world. And the biggest hoarders too.

We just love to get more of the yellow stuff and stuff them into our bank lockers.

Investment in gold has the potential to beat inflation over a long period. It is a safe haven when economic growth is slow and traditional asset classes such as equity and debt are under-performing.

There are various ways how you can get exposure to gold as an investment asset.

Gold Jewellery

Buying gold in the form of jewellery has its own costs involved. The primary one is the making charge, which can be as high as 10 to 15%. There are costs associated even when you sell jewellery, especially when it is to a different jeweller. If you are looking at holding the asset for a very long term, other options will be more cost effective and liquid.

Gold Bars

If you buy gold bar/coins, you will have to sell it to a jeweller who will deduct charges again during a sale/repurchase. With these costs and security concerns involved, holding gold physically may not be cost-effective.

Gold Exchange Traded Fund  

This fund is a passively managed open-ended ETF, which invests in gold bullion and instruments with gold as an underlying asset, to provide investment returns that, closely track the performance of domestic prices of gold in the bullion market. When an investor invests in gold ETFs, the investment is done in physical gold of 99.5% purity. Gold ETF allows investors to buy gold in quantities as low as 1gm.

Gold mutual funds  

A gold fund of fund invests in gold ETFs. Although the gold mutual fund is an easy option to invest in gold, it is generally is more expensive than Gold ETFs.

E-Gold

They are similar to gold ETF. It’s the only option where units can be converted to physical gold. You need to open a separate demat and trading account.

Sovereign Gold Fund (SGB)

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India. The Bonds bear interest at the rate of 2.75 percent (fixed rate) per annum on the amount of initial investment. Capital gain tax arising on redemption of SGB to an individual has been exempted.

The best way to invest in gold is Sovereign Gold Fund (SGB). This route of investment in gold decreases the cost and taxation, provides you with safety against theft and an interest of 2.75% p.a.

The allocation of gold in a portfolio should not be over 5-10%. It may be used primarily to take advantage of its low correlation with other assets, and the ability to accumulate in small lots compared to other alternative assets.

What is a Systematic Investment Plan (SIP) ?

What is a Systematic Investment Plan (SIP)?

SIP or Systematic Investment Plan is one of the best methods of saving and investing small amounts of money, automatically every month.

How does it work?

  • You first decide how much to save per month E.g. Rs 50,000 per month.
  • Select a mutual fund scheme or multiple schemes. E.g. Let’s say you select two funds – ABC bluechip fund and XYZ equity fund for Rs 25,000 investment in each of the funds.
  • Apply to start a SIP (either online or via a one-time paperwork process).

Once your SIP application is approved and starts, Rs 50,000 will be automatically deducted from your bank account every month and invested in the funds you have selected.

You can choose to do this for a minimum period of 6 months and can also stop and withdraw your money anytime you wish to.

Your small monthly amounts grow over a period of time to a large lump sum amount.

Also, since your money is automatically deducted every month, you don’t have to worry about manually making monthly transfers.

Rupee Cost Averaging

A SIP also allows you to take advantage of a concept called Rupee cost averaging, especially in the case of Equity Funds.

Let’s say you want to invest in the equity asset class – However, you can’t predict which month the Sensex will be high and which month it will be low.

So instead of trying to predict and time the stock market, you invest a small amount of money every month. If the markets are high, you will get a lesser number of units in your mutual fund account, and if the markets are low, you will get a larger number of units. This way, you are buying when the markets are high and also when the markets are low – Over a long period of time the market usually appreciates in value so your average cost of acquiring each unit will be low.

Tax Saving Investments in ELSS

Most people make tax saving investments in ELSS tax saving mutual funds at the end of the financial year in either January or February. They also do it in one go and invest up to Rs 1.5 lakhs at one shot.

If you need to make investments of Rs 1.2 lakhs for tax savings, and if you invest it all at one go, you are taking a chance. That’s because you don’t know if the markets are at their highest or lowest at that point in time.

If the markets are low, you will gain an advantage but if the markets are high, it may be a while before you can significantly grow your investment.

Instead, if you start a SIP of Rs 10,000 every month from March onwards, you will invest all throughout the year and your money would have even grown at the end of the year. You also won’t have to struggle to find Rs 1.2 lakhs at the end of the year.

Advantage

The biggest advantage of a SIP is the habit of regular, disciplined savings. Every month, like other EMIs, this also gets deducted from the bank account through electronic clearing service, which is convenient. Since you will have lesser money in your account, chances are that you will probably spend less too.

If you have surplus savings left in your account every month, please consider starting a few SIPs to grow your money better.

Apart from tax saving investments, SIPs can be used to plan and meet almost any goal that you may have.

It’s similar to the concept of PF deduction which happens every month from your salary – However, the major difference is that instead of your employer, you decide where and how much to invest and you have the flexibility to get your money back anytime you wish.

Why should you invest in Direct Mutual funds?

Why should you invest in Direct Mutual funds?

A lot of first-time investors think that a regular mutual fund is better because of the name ‘regular’. And when the advisor mentions about ‘direct’ mutual fund, the first-time investor often attaches negative view on ‘direct’ word.

Let’s understand the difference between a regular mutual fund and a direct mutual fund

Each mutual fund scheme — be it equity or debt — has two plans to offer, regular and direct.

The direct plan cost is lower than the regular plan to the extent of commissions paid to distributors.

In both the cases, you are buying into the same portfolio but at different costs.

Why is the expense ratio lower in case of a direct mutual fund?

In simple terms, because you do not pay any commission or brokerage to the agent in case of a direct mutual fund.

Let’s understand how mutual funds make money: through an expense ratio or management fees.

The expense ratio is the cost expressed as a percentage of assets that would be deducted from mutual funds. The ratio is an annual figure but gets reflected in the daily net asset value of a scheme.

Expense ratio matters as it takes away from your overall return. The higher the expense ratio, the lower will be your net return. Cost isn’t the primary factor for investing in an equity fund, but it matters.

In case of mutual funds, the impact is higher as costs can vary (subject to an upper limit) among different schemes.

Who defines the expense ratio?

Mutual fund schemes charge expenses in a tiered structure, as per guidelines prescribed by the Securities and Exchange Board of India (Sebi). As more assets get added, the incremental expense ratio is lowered. Ideally, a scheme which is growing in size should see lower not higher expenses.

For equity funds, the maximum expense ratio chargeable is 2.5%, plus 20bps can be charged in lieu of exit load and another 30bps can be charged for inflows garnered from B15 locations, taking the upper limit to 3%.

Direct mutual fund expense ratio will be lower than a regular mutual of the same scheme. The difference in case of an equity mutual fund is ~0.7%-1% and debt mutual fund is ~0.3%-0.5%.

How does the expense ratio impact your portfolio?

For long-term investors, just as returns compound, annual costs also compound. This is the advantage of well-priced direct plans—they give self-guided investors a return boost.

Who should invest in a direct mutual fund?

Direct mutual fund plans aren’t meant for all investors. Don’t simply jump after low cost.

If you were to pick a direct mutual fund, you have to directly deal with a mutual fund company. An agent will not have an incentive to serve you. However, SEBI has allowed investment advisers who are registered with SEBI to offer direct mutual fund.

It is better to work with an investment adviser who can understand your needs and create an asset allocation. An adviser can offer conflict-free advice and manage your investment portfolio in direct mutual funds.

There are a few online platforms that offer direct mutual funds but you need to know how to manage your portfolio. Direct plans may also not be the best option for investors who don’t have the time to manage a mutual fund portfolio.

If you are a seasoned investor who has found the right platform to access direct plans, keep in mind that expense ratios are dynamic and it is prudent to add it to the tracking list along with performance and risk parameters.

Investment guidance for management consultants

Investment guidance for management consultants

October 5th, 2007, I walked into a room full of aspirants who wanted to work for McKinsey & Company. After a rigorous and long interview process got the offer letter and I landed up spending few years in consulting before starting up.

Life at McKinsey was filled with long working hours, learning new skills and problem-solving real business issues.

The broad span of consulting work makes it an attractive career, offering a variety of projects, challenges and opportunities for personal development. This often involves working all over the world with multinational clients.

Usually, consultants are not able to allocate required time to manage their investments and here are some of the issues:

Time constraint

Consultancy requires meeting tough targets on time and consultants are often under pressure to deliver along with managing extensive travel schedule. This leaves very little time for consultants to take appropriate action for their personal investments.

Career focus

Consultancy firms often adopt “grow or go” policies. The focus remains on moving up the ladder and that leaves little scope for personal work.

Compliance

Since consultants work with corporate clients, they are not allowed to invest in client company’s stocks. This restriction includes self and family members since family members are treated as beneficiaries.

New assignments

After every few months, consultants are assigned, a new corporate client. In case they have shares of the new client, they have to sell irrespective of the price levels.

Savings growth

Consultants are paid quite well and they travel extensively. They tend to accumulate savings through salary/bonus credits. This creates a false sense of investment growth.

Few steps management consultants can take to ensure their money is working harder than they are.

Technology enabled investment management

An access that allows consultants to review and rebalance their investment portfolio remotely can ensure that they are always on top of their investments.

Review quarterly

Scheduling two hours every quarter will ensure that the investments are going in right direction and will provide psychological comfort as well.

Hire an advisor

A management consultant may hire a financial advisor to manage investment portfolio while the consultant is on the move.

Life events based investing

Buying a house, childbirth, kid’s going to college, nearing retirement etc. are all life events that have an impact on your investment portfolio. You should take time off to reflect on your investment portfolio based on your broad life ‘goals’.

A simple way to create an investment portfolio that grows peacefully is to:

Allocate 50:50 between equity and debt of your investment portfolio, irrespective of the market movement.

For simplicity, you can choose fixed deposit with a bank as a category to fill debt portion of your portfolio and index fund to fill equity portion of your portfolio. Expect 8-10% p.a. after-tax return if you follow this strategy over a period of five years or plus. You may have to annually rebalance your portfolio to go back to 50/50 allocation.

Here is even a better way to manage investments but will either require you to hire a professional or devote substantial personal time.

Allocate investments based on your investment goals and manage investments for each goal separately.

A standard 50:50 allocations may or may not make sense since each goal may have a different time horizon and psychological association.

Choose debt mutual fund or traded RBI bonds to fill debt portion of your portfolio and a combination of equity mutual funds and direct concentrated equity to fill the equity portion of your portfolio. This portfolio should generate 15-17% p.a. after-tax return.

Your money should work harder than you and provide enough financial flexibility to live a life that you love.