In an interview with Yogita Khatri of myiris.com, Veena Malgonkar, CEO at financial planning firm MPower says, ``Currently with liquidity crisis, the yield curve is inverted. The shorter term debt instruments are giving a better yield than the longer term ones.``
> What prompted you to set up a private wealth advisory firm? How has the journey been since November 2002?
In 2001, I had the opportunity to work with a franchisee of Motilal Oswal. It was here that I got interested in mutual funds as a vehicle to meet most of your financial goals. In 2002, I started my own practice as an IFA. I immediately enrolled in the certified financial planner program to leverage my knowledge. I became a CFP in February 2005.
> How has life changed after Aug 2009 - when the entry loads were abolished?
It was when the entry loads were abolished, that I realized how important it was to have a decent AUM, which earned your trials. Survival was possible with those earnings. 2009 was a bad year, where clients were still fearful about entering the market. Now I run a partly fee based practice depending on the assets under management of the client with me.
> What is the profile of clients that you mange today? Are clients clear in their goals? What steps do you take to bring clarity to their goals?
I have a mixture of HNIs (for wealth management) and young professionals (for financial planning). With the young professionals I match each investment that they make with a goal, so that they have an emotional commitment to that investment. With the HNIs we work strictly on an asset allocation principal, and rebalance the portfolio every six months or when there is an extreme reaction in the markets.
> With the markets correcting from the month of January, what kind of portfolio rebalancing should a retail investor look at now?
The whole idea of re-balancing means that there should be a switch from debt to equity with a fall in the equity market. The percentage allocation to equity would depend upon the risk appetite of the client, also the term of investment and market conditions. I try and keep some allocation towards gold/silver and some towards global equities as well (including China).
> Equity-linked Savings Schemes (ELSSs) are the best initiators for investments in mutual funds but after the Direct Taxes Code (DTC) they will become irrelevant. How is it going to impact the industry? Please share your thoughts with us on same.
It is a going to be very difficult for the retired HNI to make the Rs 100,000 investment under erstwhile Section 80C. Fixed deposits, locked in for a long period is going to result in erosion of wealth. Even for the younger investors, pension plans, with the compulsory cover and the 4.5% guaranteed returns is going to erode wealth creation. I do hope some clarity comes on this.
> How do you see various debt instruments performing given the volatile markets and rising interest rates?
Currently with liquidity crisis, the yield curve is inverted. The shorter term debt instruments are giving a better yield than the longer term ones. The safest way to invest for one year + period, and to get 9.5% - 10% returns in a tax efficient way, is through an FMP. However, interest rates should be peaking soon, and then the longer term debt funds would give double digit returns.
> What are the aspects that matter to you when selecting funds for your clients? Your top 3 equity fund picks and debt fund picks with key attributes you like in them?
While choosing an equity fund I look at the length of time the fund has been in existence, its star rating which reflects its consistency of performance, the fund house that is managing the fund, etc. Whenever, a clients starts his/her investment with me I start off with an HDFC Prudence fund (which is a balanced fund, with all the re-balancing advantages), which outperforms most equity funds. Other funds I select are Fidelity Equity fund, Franklin India Blue Chip fund, for large cap stability. For a small cap flavor I look at HDFC Mid Cap Opportunities fund and DSP Blackrock Small and Mid Cap fund. While choosing a debt fund, I put the bulk of the debt allocation currently into FMPs. For a short term fund I select Templeton India Short Term fund, to use to re-balance the portfolio after 6-9 months. I have put a small amount of my investor`s portfolio into HDFC Income fund, to take advantage of any small falls in the interest rates.
> Financial literacy and customer education is seen as a step towards helping the common man take right investment decisions. Are you planning any initiative in this regard?
I am planning to start an initiative to give a free financial health check-up to the parents of a nursery school nearby. If that initiative goes well, I plan to spread this program to other schools. It is with the young parents that I hope to inculcate the habit of regular investing, to take advantage of the power of compounding and to meet all their financial goals.
> Have you as a team set a goal for the next three years for MPower? How do you plan to expand your business?
Where ever possible I am using technology to assist me in my business. I grow my business mainly through referrals.
> Is there anything else you would like to share with our readers?
Except for insurance, most of your financial goals can be met with mutual funds. However, it would be better to leverage your returns, by seeking the advice of a certified financial planner - who would assist you in preparing a financial plan and executing the same. For wealth management too, it would be better for a professional to advise you on the portfolio, as they would be more aware of the products available in the market which could be suitable to meet your goals. Further they would be able to take a more disciplined approach to investing.
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