Hearsay is a dangerous thing. Taking decisions, especially investments decisions, based on hearsay can be detrimental to your financial health. But today, when information flows fast and loose, it is becoming increasingly difficult to separate the wheat from the chaff or to distinguish between sound financial advice and what is simply noise that could harm your investments.

Yet, increasingly, we see investors selling investment products based on the news flow of the day. If an investment product does not give the desired returns in the short term, it is considered prudent to sell it to avoid further losses. Nothing is further from the truth. An investment must not be assessed for its short-term performance but needs to be viewed from the prism of your overall portfolio based on your goals. Also, there may be tax implications to short-term transactions which investors may not be fully aware of. For instance, taxes are applicable based on whether capital gains are short-term or long-term and whether it is an equity or debt investment. Capital gains from debt investments come with indexation benefits if the investments are held for a period of three years and more, while capital gains from equity investments, held for over a year, are tax-free up to 1 lakh. To fully understand the impact of the various aspects of investment, an investor needs an expert adviser who can step in and create a financial plan best suited for them.

Role of advisers

For a country like India where financial planning is still an unknown concept for most of the population, advisers have a key role to play. Often, lack of understanding of how investments work leads to knee-jerk reactions by investors during volatile markets or emergency situations. Market volatility is inevitable. Still, today, investment decisions are more often based on popular market trends, such as in a particular sector or segment, looking at the short-term movement, without understanding the reasons behind it. However, these reactions based on market sentiments can have an adverse impact on your long-term financial goals.

This has become more prominent in the current scenario as investors have unrestricted access to information about market and scheme performances along with round-the-clock access to their investments through digital platforms. We have seen this trend in our internal data as well, where around one-fourth of systematic investment plans (SIPs) registered through the direct route in the first six months of 2019 ceased during the same period. This is not to say that the direct route of coming through a website or app or any such online mutual fund platform is harmful for investors. I believe direct channels or platforms should be left to those who understand the workings of the financial market. Financially savvy investors can take more educated decisions but such investors are few in number. The vast majority consists of people who have just started adopting mutual funds into their lexicon, thanks to the successful Mutual Funds Sahi Hai campaign.

What most investors need is the right advice. An adviser can manage investor expectations and prevent them from taking impulsive decisions along with helping them with tax planning and choosing the right investment for the right goal.

An adviser can play a significant role in guiding investors during times of volatility and allaying their fears. Investors need to be explained why equity is seen as a long-term product, while debt and fixed-income products as short- and medium-term products. They need to be explained the advantages of tax planning and made aware of the suitable investment products for that. This way the adviser plays an ongoing role every step of the way in an investor’s financial journey and keeps them from taking potentially rash and irresponsible financial decisions.

Although the Securities and Exchange Board of India and the Association of Mutual Funds in India, along with the industry, have invested heavily towards increasing awareness about different products and solutions, there is still a long way to go. Currently, only a small segment of the population enjoys the benefits of mutual funds. Hence, we believe distributors and advisers will continue to play an important role in taking mutual funds to the masses and in building a good investment experience. Advisers, distributors and asset management companies need to work together to achieve higher penetration to sustain and enhance the growth the industry has seen recently. The industry needs to evolve from being merely product manufacturers to solution-providers.

D.P. Singh is executive director and chief marketing officer, SBI Mutual Fund

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