Need Of Professional Fund Management

Can’t gauge the volatile market? Take professional help

Today’s highly advanced print and electronic media have been able to share investment-related information with the investors. The ensuing confidence encourages investors to manage their own money. There are some, though, who shy away from solo management because of the time hurdle and the lack of expertise to sift and analyse the information. Most importantly, financial markets are complex and dynamic in nature, and investments require periodical review and rebalancing to stay in sync with goals. Lack of proper management of the portfolio can result in huge losses.

Take professional help
Investors who do not have the wherewithal to understand the complexities of the financial markets are better off taking professional help. One of the cheapest and easiest alternatives available for investors is to avail the help of the mutual fund industry.

Professional fund management
Mutual funds allow investors to pool their money for a diversified selection of stocks, managed by a professional fund manager. The fund manager is generally highly qualified and experienced in markets and can handle finances better than an individual investor. Further, a fund house also employs a team of dedicated analysts who continuously research the markets and search for investible opportunities.

For instance, SBI Mutual Fund has a team of fund managers and analysts who have the ability to capture the growth potential of Indian securities and manage complex portfolios as well as the drive to deliver optimum results. The expert team of experienced and market savvy researchers at SBI Mutual Fund prepare comprehensive analytical and informative reports on diverse sectors and identify stocks that promise high performance in the future. The fund house also follows the enterprise-wide approach to risk management with a dedicated, experienced and professional risk management team covering significant functions of the organisation. Risk management identifies actual and potential risks and also safeguards investor interest through ongoing analysis and monitoring. An individual, however smart, cannot have the same access to quality information as a professional investment team at a fund house.

Diversification
Diversification is an integral part of financial management as it helps to reduce the risk associated with a particular asset class and or a single security in the asset class.

By investing in a single mutual fund unit, an investor gets exposure to varied underlying financial instruments that the scheme has invested in compared to a single instrument exposure in individual investment. For instance, investment in the SBI Bluechip Fund enables investors to enjoy exposure to 43 stocks as of October 2013 which would be difficult if the investors choose to invest on their own. Further, the fund can spread investments across different sectors. Hence, diversification through mutual funds ensures that the portfolio meets the goals.

Further, all asset classes behave differently under different market situations, i.e., all do not rise and fall at the same time. For example, in 2008 when the equity market (S&P CNX Nifty) fell by 52%, gold prices (CRISIL Gold Index) rose by 27%. In 2011 when the equity market fell by 25%, gold rose by 32%. Thus, an investor relying only on equities would have made greater losses in 2008 and 2011 vis-à-vis an investor who had held a portfolio of equity and gold.

Thus diversification by investing in various categories of mutual funds provides investors asset class diversification. Further, hybrid mutual funds such as balanced funds and monthly income plans (MIPs) provide investors with a single avenue for diversifying across the primary asset classes viz., equity and debt based on their individual risk profile.

Low costs
Investing through a mutual fund is also very convenient due to the availability of low investment amounts and the ability to buy or sell them on any business day. Direct investing requires significant capital, which may not be possible for the retail investors to arrange. Also, the benefit of economies of scale is available to a mutual fund as huge volumes and transactions ensure low brokerage and other fees, which is not the case in individual investing.

Summing up
Keeping individual limitations in mind, an investor should lean on the professional expertise of a fund manager. Skillful selection of securities and their management by a professional will go a longer way to ensure returns than unaided investment efforts. Investors can choose a mutual fund scheme / category based on their individual risk profile and investment horizon. They should, however, do due diligence before investing in any scheme.

Disclaimer:
CRISIL Research, a Division of CRISIL Limited has taken due care and caution in preparing this Report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL is not liable for investment decisions which may be based on the views expressed in this Report. CRISIL especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this Report. CRISIL Research operates independently of, and does not have access to information obtained by CRISIL's Ratings Division, which may, in its regular operations, obtain information of a confidential nature which is not available to CRISIL Research. No part of this Report may be published / reproduced in any form without CRISIL's prior written approval.

This information is given for general purposes only. These views alone are not sufficient and should not be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All recipients / readers of this material should before dealing and or taking any decision of investment are advised to carefully review the Scheme Information Document and consult their legal, tax and financial advisors before making an investment decision. All opinions and estimates included here constitute our view as of this date and are subject to change without notice.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

  • Market Overview by
    Mr. Navneet Munot,
    CIO, SBI Mutual Fund