In this episode on Personal Finance State of the Economy podcast, Aarati Krishnan, Consulting Editor, businessLine, is joined by Monika Halan, one of India’s most respected names in personal finance for a discussion on mutual funds. Monika, a sought-after speaker and the author of the bestselling book “Let’s Talk Money” and its sequel, “Let’s Talk Mutual Funds”, is also the Chairperson of the SEBI Advisory Committee for the Investor Protection and Education Fund. They discuss about mutual funds and why they stand out as an excellent investment option for young people. 

A young individual embarking on their financial journey might be faced with various options like opening a bank account, investing in fixed deposits (FDs), recurring deposits (RDs), investing in stocks or gold.

However, Monika cites compelling reasons for choosing mutual funds. Rather than focusing on individual financial products like endowment plans, ULIPs, FDs, or gold, young folks need to view their investments through the lens of asset classes, which include debt, equity, gold, real estate etc. Mutual funds are a ‘pipe that connects the investor’ to a variety of asset classes ranging from equity and bionds to gold and internatinal stocks. One can easily construct a diversified portfolio using mutual funds invest in different asset classes.

Monika explains how mutual funds enable sophisticated portfolio construction with ease, making them an ideal choice for investors looking to achieve their financial goals effectively.

When talking of mutual funds most investors recall the disclaimer “Mutual Funds are subject to market risks”. This makes MFs seems like a risky product. But Monika points out that market volatility, which investors are so wary of, is just one of the many risks investors can face with investment products. Market volatility can be smoothed out by a long holding period. But there is the risk of the entity vanishing with many unregulated products, there is the risk of not being to sell in time with assets like real estate. Mutual funds do not carry these risks. They offer liquidity at a transparent price and are very well-regulated by the Securities and Exchange Board of India (SEBI), with the result that there’s been no ‘vanishing’ mutual fund while there are vanishing companies. 

Whenever any event such as the Franklin Templeton issue has cropped up, SEBI has revisited its regulations to make mutual funds retail-friendly and safe for investors, she says. She sheds light on the riskometer introduced by SEBI, which now dynamically maps the risk of debt funds, based on liquidity, interest rate, and credit risks. This empowers investors to make more informed decisions about them. She says that SEBI (unlike other regulators in India) has proactively worked to eliminate fraud, improve disclosures, and reduce expenses for investors. 

Talking about choice in the mutual fund industry, where there are 37 categories of schemes even after SEBI reforms aimed at simplification, Monika explains that they exist because the mutual fund industry today caters to the needs of both first time and sophisticated investors. While the plethora of categories might seem overwhelming to a first-time investor, she recommends focusing on a few key categories, tailored to individual risk profiles and financial goals. By choosing one fund each from select categories, investors can build a well-diversified and manageable portfolio.

Listen in!

(Host: Aarati Krishnan, Producer: Jayapriyanka J)

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About the State of the Economy podcast

India’s economy has been hailed as a bright spot amid the general gloom that seems to have enveloped the rest of the world. But several sectors continue to stutter even as others seem set to fire on all cylinders. To help you make sense of the bundle of contradictions that the country is, businessline brings you podcasts with experts ranging from finance and marketing to technology and start-ups. 

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