Pre-empting the volatility associated with the equity markets and planning ahead, rather than reacting to the roller-coaster trajectory has always been part of the strategy that Deepali Sen, founder of Srujan Financial Advisers LLP, uses. “Since the DNA of equities is volatility, asymmetry in returns and because risk and returns are two sides of the same coin, we manage clients’ expectations by telling them that equity is meant for goals that are at least seven years away,” she said.
All additional lump sum investments are made through systematic transfer plans from the “mother” liquid fund to “daughter” equity fund, spread out over a year. This allows for entry points into the equity market to be averaged out and helps the investor earn returns from liquid or ultra short funds in the interim.
Sen and her team avoid thematic funds, and for the past few years they have been avoiding small-cap funds as well. They also steer clear of hybrid funds.
“While a hybrid fund may fall lesser than a pure equity fund when equity markets turn volatile, the overall returns of the hybrid fund might still be below zero in absolute terms,” she said. Instead, they allocate funds to asset classes based on the client’s risk appetite and the tenure of goals, usually opting for pure equity or pure debt funds.
Sen also avoids making tactical moves like moving investments within debt markets to benefit from softening of interest rates and steers clear of credit risk debt funds. “Our approach is that since the average investor’s understanding of debt market risks is low, it’s best not to complicate matters,” she said.
As a result, none of her clients panicked during market volatility, except one. “That client’s US-based son believed that because of all the uncertainty due to elections and the impending budget, it makes sense to exit equities altogether and try and enter after the new government takes over,” she said.
By and large, Sen ensures that her clients only concern themselves with meeting their financial goals. To this end, their investments have been allocated in short (0 to 2 years through short-term debt funds), medium (2 to 7 years through medium-term debt funds) or long (more than 7 years through diversified equity funds using STPs or SIPs). “We ensure that there is no lane crossing,” she said.
“Our clients are trained to cut out the noise of news and events and build their portfolio based on goals,” she added.