Investment Management: Eyes On Growth, Hands On Safety
Jul 27, 2018 | 17:49 PM IST
Jul 27, 2018 | 17:49 PM IST
The objectives of investment look seemingly simple but the road is filled with tedious roadblocks. There are various challenges one faces in the investment journey. The complex nature of investment is one of the reasons why investment is considered a domain for experts. For working professionals to get a handle on their investment portfolio it is important to be well-informed and well-advised, things possible only if they hire the services of a certified financial planner. Let's shed some light on the concept of investment management and gauge whether you need it or not.
What Is Investment Management?
To put it in simple words, investment management is the process of investing clients money in such a way that they will get maximum growth at the same time their capital will be safe and they will have funds for their short-term as well as long-term goals. Essentially, the investment management firms have a great command on the selection of investment instruments. They seamlessly pick fast-growing, relatively risky stocks to generate growth and slow-growing bonds for capital preservation. As the aim is to provide investment options that will promise high returns for the client they have to strike a perfect balance between risk and reward.
Another responsibility of an investment management firms is to take utmost efforts for creating an investment portfolio for their clients and find new investment opportunities which would not be available otherwise. Investment management firms cater to all types of client. They deal with wealthy individual investors (HNIs) and also retail investors, companies, charities and sometimes even for major corporations.
The Essential Qualities Of Investment Management
1. Understand clients Financial goals & Risk Appetite
To get the desired results, investment management firms have to acquire important information like how much capital the client has to invest, what are his/her short-term and long-term financial goals, how much returns they are expecting. Apart from this a firm also needs to know how much risk clients are willing to take. How much equity exposure are they comfortable with. These details are important to chalk out an investment plan which will be close to all the needs of the client.
2. Create A Customised Investment Plan
After understanding the risk profile of the client, the next step is to draw a customised plan. An investment firm has holistic investment expertise across the asset classes. By channelling these skills an investment advisor brings to the table all the investment schemes like a mutual fund, government bonds, equity investment, tax-free investments, etc. To put it in simple words, there has to be a healthy mix of fixed income investments and equity-linked investments. An ideal investment management company should provide highly personalised services. It needs to be aware of all the possibilities. It should have a contingency plan for dramatic events which may hamper the value of the portfolio while similar plans should also be in place to gain from the market manoeuvres.
3. Intelligent Investment Strategies
The cornerstone quality of any investment management firm is the skill of diversification. Every client requires an investment portfolio which will help him/her meet the financial goals. A diverse portfolio, which allocates the capital across all the asset classes helps to reduce risk. Once the risk is managed the portfolio manager has only one task cut out, that is of giving high growth. Thus, building robust investment strategies is one of the most important aspects of any firm. Managing risk and stressing on growth are the things which outline the business of an investment firm. There are many ways of attaining the goals of the clients, however, it's entirely at portfolio managers discretion as to which method to employ.
Looking For Best Investment Plan?
Every person who signs up with any investment management firm is looking for high growth. To satiate this need the primary job of a firm is to give a best short-term and long-term investment plans which will perfectly suit all the requirements of the clients.
To understand the best investment plan it is critical to know all the components of investment and their role in your investment. Building a comprehensive investment plan is like cooking a gourmet meal. Everything has to be perfect. In investment, like in cooking, it is important to be careful about the proportion. For growth you have equity. For safety you have debt. For tax saving with growth, you have mutual funds. For fixed income, you have fixed deposits, PPF, post saving, etc. These are the general investment options retail investor have. Using them one can design an investment plan which has an answer for all their financial goals. Let's check how.
Scenario # 1 - Salaried Class Investor. Age - 28 Years. Investment Horizon - 30 Years.
Young investors have a higher risk appetite. This is one of their biggest qualities and should be put to good use by opting for high-risk investment instruments. The sole focus of the young investors should be on wealth creation. For that, they should have 100% equity exposure. At a young age, people have lower salaries but they don't have the burdens of debts and taxes. Therefore, it is advisable for them to invest at least 25% in equity. Now there are two ways of entering the equity domain - mutual fund and direct equity investment. One should be extremely cautious about choosing one's route. A person who has knowledge and understanding of the stock market can go for the direct route and others can opt for equity mutual fund with growth option.
Rationale - Equity is the most dynamic investment medium. In a long run, it gives far better returns than any other asset class. That is the reason young investors should have 100% equity holding as they have a higher risk appetite and can easily withstand the bad phases of the market.
Scenario # 2 - Salaried Class Investor. Age - 48-55 Years. Investment Horizon - 10 Years.
Starting late is always worrisome but it's not that there are no investment solutions. While investing in the middle age, you not only have to manage investment but also your expectations. You would not get as good results as you would get be investing since a young age. For the investors in the late 40s and early 50s, the priority is not just capital appreciation but also capital preservation. In the middle age, there are plenty of challenges too. There are EMIs, tax liabilities, children's education which eat up a big portion of the income. Despite these factors, they have to be a lot more aggressive in their investment infusion as they have a lesser investment horizon.
Ideally, they should invest at least 40% of their salaries. Also, they are extremely risk-averse and have to invest in safe and fixed return instruments like debt funds, fixed deposits, etc. The capital allocation can roughly be - 20% in debt mutual funds, 10% in tax-saving mutual funds and 10% in either direct equity or equity mutual fund with growth option. This diversification will give them safety, growth as well as help them save tax.
Scenario # 3 Business People. Age - 30-45. Investment Horizon - 25 Years.
Business people have uncertain income and cash flow. Sometimes there is cash available while in sometimes their reserves run dry. Besides, business people always consider their own business the best investment. Owing to their inconsistent monthly income, investing on the monthly basis is little difficult for them. But business people have to have an investment portfolio. Therefore, young business people can start investing in equity mutual fund on a quarterly or half-yearly basis as they can't keep up with the monthly obligations.
Equity - The Cornerstone Of Investment Management
In the scheme of investment management equity plays a crucial role. Amongst all the investment avenues, equity will always be the most dynamic as it has the highest growth potential. However, you have to understand the important thing that equity investment comes with its set of challenges. If not done carefully, there are always chances that your stock investment will fail and bring you heavy losses.
If there is risk there are means of minimising risk, too. We will talk about it in the next section. For now, let's focus on how to invest in equity and what route is more rewarding.
There are two routes to invest in equity - direct equity investment and mutual fund. Those who have a demat account and posses the thorough understanding of how the stock market works they can opt for direct equity investment. Going direct has many benefits. It offers uncapped growth but at the cost of high risk. But if you get your equation right, there is absolutely no ceiling to how much profit you can get. The only condition is that you have to invest in the right stocks on the long-term basis. If you don't have enough knowledge of stock market you can avail services like portfolio management service or get help from a stock advisory firms like Niveza.
For those who want to take a safer route to equity investment, equity mutual fund is the best option. Here you don't need to worry about research and analysis. All you need to do is find the right fund, start a SIP and keep investing in a disciplined way for a long period of time. The longer you stay invested the better benefits of compounding you get.
Whatever your route may be, it goes without saying that to get sterling returns there is no alternative to equity investment.
Hand-Free Equity Investment Management With Niveza p360
To do away all your equity investment pains, Niveza has introduced p360 (Personalised Research Service). A one-stop investment solution that relieves you from the worries of research, analysis and keeping up with the buying and selling calls from the advisory firms. It's just as good as it sounds. All you require to do is open a Demat account (Niveza will help you with that, too) and be ready with your capital, Niveza will take care of the rest.