Introducing Equity Mutual Funds to Investors

We have seen and felt the goodness of equity, we have seen people making tremendous wealth from equity. We have investors, who are associated with us for years, having deep conviction in the asset class. But when it comes to new investors, it often becomes difficult to explain the potential of Equity to them. So how do you go about building this conviction among new investors, is the focal point of this passage.

Clear the Apprehensions: Many new investors are skeptical about the product, because they believe that Mutual Funds is “Markets” and markets are “Risky”. So, the very first step before bringing the client on board is clearing his apprehensions:

About the product:

Mutual Funds isn't markets, it doesn't guarantee returns either. It is a “vehicle” that may invest in the equity market or in guaranteed returns products or both. So, when the investor is investing in a Mutual Fund, he can choose to either go by the Equity Market option or not.

The Risk associated:

There are MF's which are suitable for investors with a low risk appetite and there are mutual funds which are apt for risk takers. The risk in a Mutual Fund is dependent upon the underlying asset class and on the investment holding period.

Long Term Investing: The risk in Equity Mutual Funds comes from Equity which is volatile, if you just pick up the closing value of Sensex for the last 2 years and put it in a graph, you will see the fickleness of the Sensex line, one day the Sensex is up, another day it's down, third day further down, fourth day grand recovery. The ups and downs are the inherent nature of Equity, which is the source of Risk here. However, when you extend the Sensex graph to a long period, say to 15 years or 20 years, you'll see that the erratic graph has stabilized and shows a growth trend, which also explains the relation of risk and the holding period. So, if the investor is investing in an Equity Mutual Fund, his horizon must be long.

Goal Achievement: So, first you talked about the product, then the risk associated and how long term investing can cut the risk element, next comes the critical aspect - Why? Why should the investor invest in an Equity Mutual Fund? It's because mutual fund is the best product in India to create wealth and achieve goals. As discussed above, the Risk in Equity is offset over the long term; and it's not just Risk, it's also about growth, the trend of the graph is promising over long periods. And what the investor is investing in is not Sensex, it is a refined version of Equity, “Mutual Funds”. The average return of the Sensex for the last 20 years (Jan 1, 1998 – Dec 31, 2017) is 11.80% CAGR, while the average return for all Equity Mutual Fund Schemes for the same time period stands at 22.76% (For schemes in operation since Jan 1, 1998). There is no other asset class or investment product in India which can take the investor closer to his/her goals at such a fast pace. Mutual Fund is the most suitable for investing for long term goals like for Retirement, kids marriage, education, etc.

The Benefits of investing in a Mutual Fund: After narrating the potential of Equity Mutual Funds in growth terms, next in line comes the unparalleled benefits it offers, to further strengthen the investor's conviction in the product:

Liquidity: Mutual Funds offer high level of liquidity. The investor can redeem online, from anywhere in the world, and will get the money within two working days from placing for redemption.

Professional Management: The investor's money is being managed by an expert in the field. A mutual Fund has a fund manager and a research team, having the knowledge, experience and skill. These people are working full time researching the securities and market trends, to bring the best for the investors.

Diversification: Mutual Funds are optimally diversified, which brings down the risk and boosts returns.

Convenience: Mutual Funds offers unmatched investing convenience. The investor can invest from his mobile phone or laptop through NJ's E-Wealth platform. You can talk about options like PIT. Investing and redemption are quick and easy.

SIP: When introducing Equity MF's to investors, Lumpsum investment may not be preferred by many investors, but a small SIP may be seen as an option worth trying. SIP in an equity Mutual Fund offers a good recourse to investors who are trying their hands at Equity.

The above are a few points among many, that may create a positive outlook for equity among investors. Hopefully, this passage will be helpful in convincing new investors to explore Equity Mutual Funds.

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