It is easier to navigate the ship when the sea is calm, but during a storm, an expert captain is needed to save the ship and the lives. Similarly in these trying times we need a financial planner to manage our finances.
Ananth Ladha, Founder, Invest Aaj For Kal draws from the Mahabharta to put across this point. “The role of the financial planner is always goal planning and managing emotions. I will just quote example of Mahabharat, Krishna being an advisor of Arjun, guided him all throughout. Most importantly when the war was about to begin, Arjun was wanting to leave it seeing his uncles and relatives in his front. That was the most critical part of Krishna when he managed Arjun’s emotions during difficult times.”
In March when the market was tumbling and came down by about 35 per cent from its peak, many investors sold their equity investments, but they are now regretting their decision as the market has recovered almost 25 per cent of losses. “So, instead of using that period as an opportunity to accumulate units for long-term goals, many put dent on their portfolio by exiting. A good financial planner might have stopped them from taking such wrong steps,” argues Col Sanjeev Govila (retd), CEO, Hum Fauji Initiatives, an investment advisor for facilitating Indian Armed forces.
In uncertain situations such as now, one tends to take decisions based on fear, which, more often than not are not wise and can adversely affect one’s finances. People often act on the advice from those who may not be equipped to provide a proper financial advice.
Once you decide, the next step is to choose the right financial planner.
To begin with you should check the qualifications of the financial planner and whether is he or she is authorised by Sebi to offer such services. “Do take references from existing clients to know exactly what to expect and how the advice has panned out in various cycles and the communication in tough times,” advises Shweta Jain, Founder, Investorgraphy.
Says Geetha Jain, Head, Client Services, Grow Wealth, “If any financial planner is promising you fixed high returns in equity markets especially for short-term goals then please stay away from such planners. Because even experts cannot predict the returns.”
It is important that you stay away from mis-selling in the name of financial advice. “Some, for their own interest recommends products which actually does not fit the client’s risk profile and goal, please stay away from such advisors, cautions Ladha.
Recently Sebi mandated that an entity can either provide advisory services or distribute financial products so that there is no conflict of interest and investor does not become a victim of mis-selling
Fee-based financial planners are recommended over those who charge a commission for products they sell you because in that case you may be sold products you do not need.
While a financial planner is the way to go for small retail investors, if you have a investment amount of Rs 50 lakh or more to manage, you can opt for Portfolio Management Services (PMS). Last year Sebi doubled the minimum investment amount for PMS to Rs 50 lakh from Rs 25 lakh.
Says Abhinav Angirish - Founder, Investonline.in, “PMS has an upper hand when it comes to customisation. Investors can opt to invest only in large caps, midcaps or a combination of both. Mutual funds do not offer customisation of one’s portfolio. In PMS, the portfolio manager is directly answerable to an investor. No such accountability exists in a mutual fund.”
In India there are two types of PMS - discretionary and non-discretionary. Discretionary PMS allows the portfolio manager to buy and sell the securities as per his discretion. In non-discretionary PMS, the portfolio manager has to consult the investor before making investment decisions.
How to select the right PMS? Says Ankur Sinha, Co-founder, “Abide by CARE formula. Here C stands for cross-check, A for assess, R for research and E for Eagle-eyed.” He says that when you are looking for a right PMS, it means you have decided to trust them with your hard-earned money. So, before you make this decision, do some basic inquiry about the company and cross-check all your findings.
Assess/evaluate the company for its credibility aspect, its track record, initial fee, performance fee and registration with Sebi. Be wary if much data is not available in the public domain or if the company offers you a much lower fee as compared to its competitors.
Do perform some research about the company’s services, take feedback from people who are either taking or have taken their services and also check about the exclusivity that the company will provide to your investment. One should also keep a quick eye for conflict of interest the company may pose.
Sinha explains how the fee structure works in a PMS. Entry load and management fee range from one to three per cent. Then there is a performance fee or profit-sharing fee. This fee is charged when the return on your investment exceeds the promised rate. Besides these, some firms also charge clients for opening a Demat account, conducting audit and custodian fee. There may be some other charges that you need to clear right at the time of signing of the investment agreement.
“In the majority of the cases, these charges are often negotiable, so an investor should always go for hard-bargain,” he adds.
Remember, it is your hard earned money. Make the most of it.