While it's a good thing if clients read and analyse their investments online, the problem starts when they start comparing performances and taking it too seriously.
MFDs say that they often get calls from investors asking why they do not have the top performing funds in their portfolio. They say these queries are a result of online investment apps pitching the best performing funds (often in a short period) to investors without considering their goals and risk profile.
Why do MFDs refrain from suggesting ‘best performing’ funds?
In the investment world, the first rule is that higher returns come with higher risks. Most MFDs feel that high-risk funds like thematic schemes or funds that invest in high beta stocks are not suited to the risk profile of their clients. There is also the question of time horizon and consistency.
So, how do MFDs and RIAs deal with such questions from their clients?
Viral Bhatt of Money Mantra says that investors are right to question the fund selection of MFDs. "It is our job to take them into confidence by explaining the fund selection process to them," he said.
The approach used by investment platform Moneyfront is similar. Its CEO Mohit Gang said that they try to counter the issue on both the fronts — digital and personal.
"Firstly, unlike other platforms, we do not tempt investors by displaying 'high return' funds on our homepage. Yet, if a client comes to us asking for a specific fund based on past returns, our physical team explains to them why the funds suggested to them are more suitable than the one he is asking for," he said.
Dinesh Rohira, CEO of 5nance said that many millennial investors are now looking at mutual funds with a trading mind-set. "This is more of a trading mind-set. If the government comes up with an EV policy then they think that the funds centred around EVs will do well. However, we all know the about the risk associated with these funds," he said.
Rohira uses past data to manage this behavioural aspect of millennial clients. "We show them the track record of different kinds of thematic and other high-risk funds in various time frames. We also tell them how investors have lost money through this approach (looking at past returns). Our view is that if you want to trade then it's better to try your hands at securities", he says.
'No one can pick winners consistently'
Millennial clients are also known for feeling let-down when their funds are not the best in their respective categories.
Rahul Jain of GR Finvisors said that he sets the expectation right from the beginning. "On the very first day, I tell my clients not to assume that all the funds I am suggesting will always be at the top of their league. And that it's not feasible to change funds every few months to always have the best performers in the portfolio," Jain said.
"I stress on the fact that investing requires discipline. And explain it to them the importance of prioritising goals and time horizon in investing," he added.
