Financial Planning

It is heartening to see how investing through systematic investment plans (SIP) is steadily becoming an integral part of the strategy adopted by mutual fund investors. Another emerging trend is aligning these regular contributions to specific long-term goals that not only helps investors avoid making haphazard decisions when faced with the volatility but also allows them to benefit from the true potential of equity as an asset class. 

The change in the attitude of investors is evident from the fact that despite the intermittent bouts of volatility over the last 15 months or so, SIP inflows haven't got affected. In the past, when investors used to invest without a clearly defined time horizon and goal, they would panic and stop investing through SIP during volatile periods. Although situation akin to current market tests the patience and perseverance of even the disciplined investors, they reap the benefits of “averaging” once the market stabilizes and the rally becomes broad-based. 

In this entire process, investment advisors have played an important role by handholding investors and guiding them through challenging times. Many times, this is not really appreciated as the impact of advice during rough times can't be quantified in terms of gains in the portfolio. In fact, as soon as the market settles down, the value of advice is forgotten.

The recent data published by the Association of Mutual Funds in India on SIP longevity highlights how investors find it difficult to remain focused in the absence of help from advisors. The data shows that only 9% the direct plan investors continued their SIP for over five years. However, under the regular plans, 19% of investors continued their SIP after five years.

Therefore, considering that equity has an important role to play in the long-term wealth building process of investors, seeking professional advice can make a significant difference to their portfolios, especially if they are not confident about making the right decisions themselves. Although investing in a regular plan is more expansive as compared to a direct plan, the benefits of keeping the asset allocation intact far outweigh the increased cost in the long run. Besides, working with an advisor ensures that the portfolio is monitored in a disciplined manner and investors get to participate in this process which can help them ask the relevant questions in future. 

Then, there are investors who often face the dilemma of whether to invest directly in stocks or take the mutual fund route.