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Financial Planning ‘If the initial journey is smooth, investors will stick to equity funds for long’

‘If the initial journey is smooth, investors will stick to equity funds for long’

Kavitha Menon shares how she helped her client who was in a debt trap while Praveen Chhajed brought a conservative client into equity investing even though he had suffered losses in the past.
Darshita Shah Jan 13, 2017

Kavitha Menon, Mumbai based RIA

One of my friends who was working in an MNC approached me with a unique problem. He had bought six properties and a major portion of his salary went into repaying the loan that he had taken to acquire these properties. He fell into a trap of real-estate agent who sold these properties with a lure of 100% appreciation within a year. However, property prices remained flat even after two years.

I advised him to sell at least two flats immediately – to meet household expenses and repay portion of the home loan and credit card balance. I advised him to park the remaining amount in liquid and income funds and rent out rest of the flats. This cash flow also went to repayment of the loan. After this clean-up exercise, this client was able to start an SIP of Rs. 10,000 within a year. Currently, he owns three properties and has a good portfolio of mutual funds.

Praveen Chhajed, Pune based IFA

A few years back, a prospective client approached me seeking advice on his retirement corpus. The first thing he shared was his reservation about equity investments due to a bitter past experience. I sensed that recommending equity funds would not suit his risk appetite and advised him to park some portion of his corpus in debt funds to get better returns compared to bank FDs.

Over a period, this client realized that mutual funds have a potential to beat inflation and deliver good returns. I advised him to invest a portion of booked profits in balanced funds. He put his money in balanced funds which fetched him 11% CAGR over three years. Now he has started investing in diversified equity funds.

This incident helped me understand that advisers need not encourage first time investors to get into equity products. The ideal starting point would be liquid funds. If the initial journey is smooth, investors will stick to equity funds for long.

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