Why Direct is Not An Option for 90% of Today’s Investment Products.
Understand the difference between Static Base (Predictable) & Moving Base Investment (Unpredictable).
Why “Moving Base” Investment Instruments or Unpredictable Instruments cannot be managed directly.
1) Investments are of two types
2) One is where the base value is largely Fixed like a Bank Savings Account, FD, PPF, Liquid and Short Duration Funds. In these funds move largely upwards (positive returns) but slipping downwards is extremely rare. These kinds of instruments may be handled directly. So if you have Rs 100, the journey of the Rs 100 will always be higher than 100 and the growth will be predictable.
3) The Other Kind of Investment Instrument is where the Valuation (NAV) fluctuates on a Daily Basis (Moving Base Instrument) & this fluctuation is Unpredictable.
4) The NAVs move Upwards & Downwards and Every Movement whether Up or Down has to be responded in specific ways.
5) Downward Movements Create Anxiety among Investors leading them into making Incorrect Decisions that can be very damaging in the long run.
6) In comparison Fixed Base Instruments creates NO Anxiety whatsoever and demands very Little Attention.
Nothing much needs to be done about Fixed Base Products like an FD, PPF, Savings Account,. Liquid Funds etc except for being aware of Tax Implications like Deductions and providing Fulfilment Services.
7) But in a Moving Base Products with fluctuating NAV, Every Major Drop is an Intervention Opportunity.
8) Volatility of Markets calls for Intervention. For example a “Sideways Range Bound Volatility” is a Great Opportunity to focus on Time Bound Top Up SIPs & Collect as Many Units to Ultimately Explode when the Markets Change Course.
9) A Falling Market is an Intervention Opportunity to Switch from Debt to Equity.
10) An Steep Rise in the Market is an Intervention Opportunity to Perhaps Book Profits and or Rebalance from Equity into Debt.
11) Interest Rate Increase or Decrease are both Intervention Opportunities.
12) Macroeconomics News Flow are also at times good Intervention Opportunities.
13) The fluctuating NAV Product like a Mutual Fund needs more care and nurturing.
14) It is like Gardening; where the Gardener plays a Big Role in pruning the plants, adding manure to the soil, removing the weeds etc.
12) Constructing a Portfolio & tailoring an Investment Strategy for Clients needs Professional Insights, Knowledge, Skills (IKS) for products with fluctuating NAVs because the fluctuate because of multiple reasons.