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Align investments with risk, ditch past performance chase for success

Investment decisions should be guided by investors’ financial objectives and risk profile. Chasing investments solely based on past performance is not in the interest of the investors, says LIC MF CEO Ravi Kumar Jha

Ravi Kumar Jha, MD & CEO, LIC Mutual Fund

Ravi Kumar Jha, MD & CEO, LIC Mutual Fund

Ravi Kumar Jha, MD & CEO of LIC Mutual Fund, emphasizes the importance of aligning investments with financial goals and risk tolerance in an exclusive interview with Bizz Buzz. He cautions against chasing past performance and highlights the benefits of utilizing technology to reach a wider audience. Jha also sheds light on the Indian economy's potential, the MF industry's growth, and investment strategies for young adults

How do you see the country's economy doing?

The Indian economy, according to International Monetary Fund (IMF) estimates, will emerge as the world’s third largest economy by 2027, hopping over Japan and Germany, as its GDP crosses $5 trillion dollars. The IMF has predicted that India’s real GDP will grow by 6.3 per cent in 2024. If we look at the Indian macro, most of the variables are in green. Our median age is much lower than developed countries and even China. India's economy has strong potential for continued growth in the near future. However, it faces few challenges that need to be addressed. Government policies, along with private sector efforts, will be crucial in navigating these challenges and unlocking India's full economic potential.

What is your view on the country's GDP growth and inflation?

Real GDP may grow by 7 to 7.5 per cent in the next couple of years. This being an election year in India and US, we may see volatility going ahead as global data continues to provide mixed signals. But the long-term growth story continues to remain intact. In the last two years, the Reserve Bank of India has moderated the liquidity in the financial system and raised policy rates to contain inflation, which has ensured that the core inflation number comes down to 3.9 per cent in December 2023.

Food inflation continues to surprise on the upside mainly due to seasonal issues but in the medium to long term inflation likely to continue to align to the RBI’s objective of maintaining the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

The numbers of New Fund Offer (NFO) launch slightly fell to 95 in the year gone by from 104 in the previous year. How do you see it going forward in the current fiscal?

If you look at the SEBI categorization, SEBI allow launching of only one product in each basket with the exception to sectoral/thematic in equity category and the Passive Fund (Index Funds, Exchange Traded Funds etc) and Fund of Fund(s) categories. As a result, Asset Management Company cannot launch products in already existing category. This may be one of the reasons why we haven’t seen a growth in New Fund Offer (NFOs) this year.

Furthermore, NFO should be launched to either fill the gaps or address market requirements. As the number of asset management companies have increased in the past 1 year, we may see a growth in the NFOs being launched in the current fiscal year.

What is your view on the MF industry's Asset Under Management (AUM) crossing at March-end?

According to the data by Association of Mutual Funds In India (AMFI), in December 2023, Mutual Funds’, Asset Under Management (AUM) crossed Rs 50 lakh crores. The growth of Mutual Fund industry’s AUM has been around 19 per cent in the last 10 years. The Mutual Fund industry's AUM has grown from Rs 9 lakh crores in December 2013 to Rs 50 lakh crores today. It took 13 months for MF industry AUM to reach Rs 50 lakh crores from Rs 40 lakh crores. We expect positive trend to continue.

According to you, which kind of funds are the glamour of the season?

Investment decisions should be guided by investors’ financial objectives and risk profile. Chasing investments solely based on past performance is not in the interest of the investors.

For short-term investments, debt funds may be considered. For a time, horizon more than three years investor may look at broad based equity funds ideally, pick a scheme wherein the duration of the scheme matches with the investment timeframe of the investor, for a time horizon more than three years investor may look at broad based equity funds. ELSS Tax Saver funds may be looked at if one is looking for tax savings provided the investor is under the old tax regime. For an investor, it is more important to achieve financial goals than picking top of the chart schemes.

How do you plan to use technology to improve reach of your offerings at LIC Mutual Fund?

At LIC Mutual Fund we acknowledge the pivotal role technology plays in overall growth of our business. We have recently launched LIC Mutual Fund Investor Mobile APP for facilitating investments in our schemes.

For the convenience of our investors, the app offers a wide spectrum of services– be it lumpsum investments, Systematic Investment Plan (SIP), Systematic Transfer Plan (STP), Systematic Withdrawal Plan (SWP) and redemptions. It also offers other crucial facilities such as updating bank details, contact details and setting up payment mandates. We have partnered with many digital platforms to reach to more investors. Our focus on digital space should help our investors and distributors to transact from the comfort of their homes and offices respectively.

What is your advice to investors looking to achieve financial goals such as retirement or child’s education?

Goals such as retirement or child’s education are non-negotiable. Put simply, a household need to save for these goals well in time. Regular savings can make this cumbersome task relatively easy. Long term goals warrant exposure to well-managed equity portfolios that may offer to beat inflation and create large corpus. Mutual funds offer a wide spectrum of equity and debt funds with varying levels of risk-reward. Investors should use SIP to invest in mutual funds. SIP in mutual fund schemes not only offer convenience to the investor but also help to reduce timing risk. SIP also helps investors to buy more when the stock markets correct. Instead of worrying over volatility, which is the second nature of equity markets, investors over a period of time benefit from it. Investors with large sums, should consider deploying money in equity funds through systematic transfer plans.

As one moves closer to financial goals, one should gradually reduce their exposure to equity funds and instead allocate more to debt funds. This should preserve capital.

Individuals should also consider buying adequate term life insurance. This ensures that the financial goals such as child’s education and spouse’s retirement are taken care of even if the breadwinner of the family is not around.

What should be the investment strategy for a young adult?

Starting the investment journey early is half the battle won. This gives youngsters long time to which may compound their money. Rest of the heavy lifting is done by regular investments across asset classes. When you are young, do not chase returns, just because you can take risks, or you have small sums on hand which you can afford to lose. While investing in risky assets such as equities, do seek investment in regulated business-like mutual fund which may be a preferred option. SIP as an investment tool can give you an exposure to professionally managed investments over long period of time which helps in rupee cost averaging without timing the markets.

Kumud Das
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