Investors are often clueless about their risk appetite. Especially during market rally, investors get more optimistic and insist on investing in high risk instruments in the hope of making quick bucks. As a result, advisors see more inflows in mutual funds.
However, when the market corrects itself, these investors get surprised. The only solution is to coach them to be more cautious.
We spoke to a few advisors to understand how they manage their client expectations during market rally. Let us see that they have to say.
Ram Barcha, Vikalp Finvest, Rajkot
The best way to set the expectation right from the beginning is to let the client know performance of the funds during bear markets. I make them understand what kind of downside returns they can expect if something goes wrong with the rally. Many clients may back out their decision of taking strong position in equities during market rally after understanding the downside risks. I also dissuade them from choosing high-risk funds.
Umesh Shukla, I Can Financial Solutions, Valsad
Irrespective of the markets, I give utmost importance to asset allocation. I spend a lot of time with my clients gauging their risk profile. I insist that all my clients have a little ‘fall back’ money. I educate them on how portfolio diversification helps sustain market cycles.
In my 33 years of experience, I have learnt that markets cannot be trusted. I urge my clients to exercise caution and to be prepared for the worst.
AK Narayan, AK Narayan Associates, Chennai
Irrespective of the market conditions, I coach my clients to have conservative expectations from their investments. At any given point in time, I ask them not to expect more than 12%-13% tax free return. If they insist on investing a large amount, I ask them to invest in liquid funds and do an STP for 6 to 9 months instead of investing lump sum.
Let us know how you are managing your client expectations.