Robo-advisors can be useful but first-time investors should go to a financial adviser

Getting started with mutual funds is not difficult, but it would be best if you do so with some help at hand


For an investor who is well aware of mutual funds and portfolio design, taking the help of an automated rebalancing system could be very useful since it would cut down on the chore of calculations and the implementation mechanisms.
For an investor who is well aware of mutual funds and portfolio design, taking the help of an automated rebalancing system could be very useful since it would cut down on the chore of calculations and the implementation mechanisms.

I am a first-time investor and am planning to through NJ Mutual Fund Automated Portfolio Rebalancing System (MARS). Do you think it is better to invest through MARS instead of buying?

—Pragya Das

Getting started with mutual funds is not difficult, but it would be best if you do so with some help at hand. If you consult with an adviser about investing in mutual funds, she would be able to assist you with a lot of things.

Primarily, an adviser will be able to educate you about what mutual funds are, the different categories, and what to expect in terms of returns as well as investment experience from this product.

They would also be able to guide you in terms of how much to invest, why, and how to structure your portfolio. Over a period of time, they can monitor the portfolio for you and help make course corrections too.

The system, such as the one you are mentioning, enables you to do rebalancing of your investment portfolio periodically in an automated fashion.

Rebalancing is an important maintenance activity to perform, to maintain the risk level of your investments.

It moves money from asset classes that have done well in a period of time to asset classes that are lagging (for example, from equity to debt), periodically to restore the asset balance in the portfolio.

This is not a trivial exercise and an investor would be well served to get help in this regard—either automated or from an adviser.

There are things such as taxation to consider while implementing this process and it would be prudent to do it in a guided manner.

For an investor who is well aware of mutual funds and portfolio design, taking the help of an automated rebalancing system could be very useful since it would cut down on the chore of calculations and the implementation mechanisms.

For a first time investor such as yourself, however, it would be better to go with an adviser.

I am 67 and have suffered huge losses in my mutual fund investments in the past 5 years. My adviser has been asking me to increase my exposure, which I did from Rs20,000 to Rs40,000 a month. However, it’s only in short-term equity funds. Kindly help me in recovering the money.

—P.K. Baruah

If your adviser is recommending some funds for you as ‘short-term equity funds’, then I’m afraid he or she is not serving you well.

There is no such thing as an equity fund that is suitable for short-term investments.

Equity investments require a time frame of not less than 3-5 years to bear fruits in terms of returns.

The last 5 years have been good in the mutual fund market.

Equity funds have returned between 10-15% annually in this time period and I find it surprising that you have suffered losses in your portfolio.

Your current adviser may have recommended some poor funds and is probably playing catch-up with your money now.

I would suggest you take your portfolio to another adviser and have it reviewed thoroughly, especially considering the fact that you are planning to invest significantly more in your portfolio.

Losses made in the market can be gained back with prudent investments and patience.

A good adviser would take all factors into consideration—your age, your risk tolerance, your cash flow needs and your investment time frame, and guide you towards not just recovering your losses, but also to enhance your wealth.

How can I change my nominee for mutual fund investment? Is there a fee for it? Can I have more than one nominee?

—Shailendra Chauhan

Having a nominee in a mutual fund folio is important.

In case of something untoward happening to the primary investor, it would make it much easier to transfer the units to another person if that person is specified as a nominee. You are probably already aware of this since I gather that you have a nominee in your folio that you want to change or add to.

Changing the nominee in a folio is an easy process and it requires a specific form to be filled in—all asset management companies (AMCs) will make these forms available to investors either on their website or in their offices.

You can have more than one nominee for your investments. You can specify up to three nominees, and you can even specify what percentage of the investments should go to each one.

For example, you can have three nominees with the first nominee getting 50% (for example, a spouse) and the other two nominees getting 25% each (your children, for example).

If you don’t specify the allocation ratio, then the AMC will distribute the proceeds in equal measure to all the specified nominees. A nominee change form can be used to either add or replace nominees in a folio.

Srikanth Meenakshi is co-founder and COO, FundsIndia.com.

Queries and views at mintmoney@livemint.com.

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