The other day, I got a call from one of my clients. She had earlier planned for SIPs. But she told me that her bank manager was telling her to avoid investing in funds with high NAV (Net Asset Value). Bank manager further advised her to wait for 2-3 months and then invest because as he said by then the NAV of those funds would come down.
I could understand the investment related misconceptions among the common investors (though they need to know at least few important basics of investments). But coming from a bank manager who is supposed to guide the people in investment matters, was surely shocking. I don’t know whether this person was genuinely making such remarks or deliberately misleading the gullible investors. Both these situations are worrisome. How can people fulfil their important financial goals and achieve financial freedom with such questionable advisors?
Here in this forum, we are constantly educating about the right basics of investments. Let me reiterate few points here again-
1) Funds’ NAV has no role to play in the performance of the funds-Any fund starting today naturally would have an NAV of Rs 10. Does this have the advantage over similar fund with NAV say Rs 1000? Absolutely not !
The return of the funds depend upon the fund management, risk management, stock selection, investment style, expense ratio etc. So the selection of the funds should be on the basis of these factors. There is no role of the NAV in the performance of the funds.
2) NFO (New Fund Offer) should be avoided- NFOs are trying to exploit the same misconception that old funds with high NAV are pricey and new funds with NAV Rs 10 are bargain. The fact is that in almost all cases, it’s better to invest in old funds with proven track records and known investment style rather than investing in NFOs.
3) Stopping SIPs is self-defeating- The purpose of SIP is disciplined saving through regular and automatic investments. SIPs act wonderfully well because it not only puts some portion of your income away in savings but it also takes away the pain of taking investment decisions again and again. Further, through SIP, you discount the market volatility. In fact market fluctuations work like a friend for SIP investors. But to be effective, SIPs should be run for a very long period. In fact I say it with total responsibility that SIPs should never ever be stopped. Even after retirement, there should be some room for savings through SIP.
Stopping SIPs in order to time the market is one of the worst things you can do to your portfolio. Serious wealth is difficult to generate by trying to time the market. Don’t try it, you can’t do it, nobody can.
Understanding a few basics and maintaining simplicity of disciplined investments will take you toward a robust portfolio. Arming yourself with these basics and maintaining discipline will let the power of compounding to work magically and takes your portfolio towards creating financial freedom for you.
Manoj Pandey
CFP
