Direct Investors Too Need Financial Advisors

Since 2013, we are seeing a good amount of investors opting for the direct option, and getting themselves away from commission agents. This gives birth to the concept of DIY or do-it-yourself in Personal Finance or Mutual Funds in particular. But does this means all investors can do without advisors? Well, one of the recent incident & a report shows otherwise. The inference is – Direct Investor Do Need Advisors.

Well the numbers are encouraging:

If you are going direct, you should not be doing these 2 common mistakes which lead to disaster.

First is just making a list of Best Funds or Top 10 Schemes or 5 star rated funds from a blog or a website and invest in them. No, the economy is ever changing and the impact can make you greedy or fearful. And when you are gripped to these two, most commonly you loose sight of your goals. You act irrationally and your portfolio suffers. And it happens every day, every week, every month or every year. Portfolio review with an expert is the key. Can you manage this alone?

The second mistake is to follow a herd. You just listen to Business Channels or just read lame fund reviews and invest without no research backing. Direct means, that the advisory & research will be borne by the investor. He can do this on his own or pass the burden to an advisor. If you can do it nothing best than this as you know yourself and your portfolio. But if you are not a finance lover and still try to do it to save some fees – You are penny wise but pound foolish.

As you can see, the share of direct investments in equity funds has surged, and if this is done by immatures, god saves them. But in case you think Debt Investments offer some relief, look what happened recently.

Taurus Mutual Fund, recently stopped subscription to its 4 Debt Schemes as one of the securities ratings changed to “default” and the NAVs came crashing by 7% to 12%.The irony is one of this four scheme is a liquid fund which is supposed to be safest with portfolio maturity below 91 days. Entire year profit is gone and think of a person who had invested recently. His capital has gone down – Yes in a Debt Fund.

Look at this newspaper cutting with messages marked in red.

Now I would like you to see this data. The data shows Investor’s Behaviour particularly person who invested directly during Stable & Volatile times. The 81% of direct investors churned or exited their investments within one year.

Point to Highlight:

• Under both the scenarios, over 80% of the redemptions were carried out with a holding period of less than one year (In period 2, almost 60% redemptions were in less than 3 months), in the case of Direct investments.
• The above clearly indicates that as soon as markets turned volatile, Direct investors decided to move out of Mutual Funds while investors in regular who had advisors handholding could convince their investors to stay invested for benefits of long-term
• In both the analyzed periods, Advisors have the highest value of investors who have redeemed only after a five-year holding period. In fact, approx. 40% of their investors had a holding period of more than two years.
• It is clearly evident that Direct investors get worried due to lack of guidance and take a decision to leave the fund as soon as the markets turn choppy. A mutual fund is not a product meant for short-term

Presenting this data does not mean, you should avail regular plans only. The plans help you to decide which way you wish to compensate your advisor for his valuable advice. The point is to AVAIL ADVICE & HAVE AN ADVISOR.

Share your view on this topic. Do you think Advisor plays an important role?

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