Question: The Husband & Wife both would like to invest monthly Rs. 10,000/- each in Equity Mutual Fund Schemes through Systematic Investment Plan (SIP) investment strategy. I have advised both of them to Rs. 2,000/- per month into the following five mutual fund schemes as recommended by you. The following are the five recommended mutual fund schemes for your kind notice;
- FT India Dynamic PE Ratio Fund of Funds – Growth
- Benchmark S&P CNX 500 Fund – Growth
- HDFC Top 200 Fund – Growth
- Fidelity Equity Fund – Growth
- Sundaram Select Mid-Cap Fund – Growth
But they would like to invest in the different mutual fund schemes because of repetition of schemes for husband and wife.
Kindly let me have your advice on the above issue and oblige.
Mr. Gerard Colaco: What the client is suggesting is most unwise. Please explain to the client that we select the best investment strategy for a particular client, depending upon the client’s need. The five funds chosen offer an optimum balance between active and passive fund management, asset allocation and large, mid, small-cap stocks, growth and value stocks.
Please tell the clients that if we choose funds other than these, there will be no additional benefits in terms of diversification because all other mutual fund investment schemes will be having virtually the same stocks. But the strategy may suffer. It does not matter even if there are 20 members of a family investing in the same strategy.
The strategy is important. Individual funds are mere tools to achieve the strategy. Some funds themselves amount to strategies that are unique. For example, if we are to recommend the FT India Dynamic PE Ratio Fund of Funds to one of the family members but not to others, the others will deprived of the superb asset allocation and re-balancing strategy offered by this fund, which no other fund offers.
Similarly, the Benchmark S&P CNX 500 Fund comes very close to being a total stock market index fund. If we are to delete this fund from the portfolio of any investor, that person will not be investing in a broad-based index fund. Once again here, there is no alternative because no other fund has an index plan that tracks the NSE 500 Fund.
The clients should be told that if they insist upon different funds for each individual investor, you can very easily give them what they want simply by referring to our ready reckoner of recommended funds. However, they will not be getting the best possible strategy which it is our aim to give them because it is good for them!