EQUITY INVESTMENT: WHY and HOW?
UMBER TANYA ANSARI: In my experience, investors want to either simply make money or they wish to invest but want a monthly payout to meet expenses. Ironically, there's a big objective that investors in Pakistan often forget - maintaining purchasing power.
PAGE: What does that mean, exactly?
UMBER TANYA ANSARI: That is a reference to inflation. When we hear the phrase 'rising inflation levels', we translate it to prices of everyday necessities going up. Although that is a relatively concise manner of stating it, it's missing an angle, which is the decline in what our savings are going to be able to buy for us in the future, known as 'purchasing power'.
In other words, will you still be able to afford everything you can today ten years from now when inflation will have driven prices up? Probably not...unless you invest with that objective in mind.
PAGE: But people have savings accounts here - so then why wouldn't they be beating inflation?
UMBER TANYA ANSARI: Because they assume that certain investment avenues are 'safe' and push all their money that way since they only focus on nominal returns - ones that aren't inflation-adjusted. This is evident in the high allocations to short-term government securities and fixed rate bank deposits in most investment portfolios. Investors need to invest in asset classes that provide a return that is greater than the rate of inflation to meet this objective.
PAGE: Is there really such an avenue available to investors of all categories?
UMBER TANYA ANSARI: Yes there is - it's the stock market! I know that most people hear equities and panic and think it's far too risky, but it is historically the highest-returning investment available to us in Pakistan - and Pakistan happens to have a great stock market! However, directly investing in stocks is only suitable and recommended for those who understand how the dynamics of the stock market work.
The ideal solution for beginners and people who don't have the time or skills required to invest directly in the stock market is to invest through stock-based mutual funds. These schemes are the common man's ticket to investing in the stock market in an easy and hassle-free way.
PAGE: How does that work - investing in equity-based mutual funds?
UMBER TANYA ANSARI: Mutual fund schemes that invest in the stock market are managed by experienced professionals who have the understanding and knowledge of the stock market. They constantly study and monitor the markets to identify growth opportunities. Such schemes don't require you to make decisions regarding which stocks to buy, when to buy and when to sell - these decisions are made on your behalf by a fund manager dedicated to managing these schemes.
PAGE: What should we expect when we invest in such a fund?
UMBER TANYA ANSARI: A lot of people ask fund houses to quote them returns that they will get on their mutual fund investments. Well, and I say this every time, WE CAN'T. If someone quotes you a return that you WILL get, and guarantees it (unless the fund specifically has this feature), they are wrong. We can not quote a return. What we can show you is historical performances of capital markets. For example, we can tell you that, historically, when averaged out for the last 15 years, our stock market has yielded about 25 percent per year and none of the other common asset classes have delivered that much - even when you adjust it against average annual inflation, it still yields more than 15 percent per year. Hard to beat that!
PAGE: Sounds like a good idea to invest in equities then! Any suggestions for our readers before they invest?
UMBER TANYA ANSARI: Yes, I do. One - don not invest blindly. Please know your rights as an investor, ask to have all fees disclosed to you, be clear on the Funds' investment objectives (they should match yours), and check the credentials of the fund house and experience of its fund managers.
There are so many fund houses now and it's important to invest with people who know what they were doing - you can gauge this based on their experience and backing. Two - don't think short term. I cannot reiterate this enough! If you want to diversify your investment portfolio into equities (which I highly recommend if you have the time and holding power to), then you must think long-term.
Long-term is not a year - long-term is 5 years! With equities, the longer the better. People gasp when they hear 5 years, but honestly, look back to 5 years ago and tell me it does not seem like it was just yesterday. Three - do not get excited and invest everything you have in equity funds. That's neither my recommendation to you, nor any good fund house's.
Diversify into equities by starting with a portion of your savings that you know you do not need to access for several years to come. Do not worry though - if you really do need it for any reason, mutual funds are liquid so you can get your money back within less than a week.
Also, please consider where you are in your life. Those who are younger may invest much more on the equity side than those who are older. If you are approaching retirement, consider investing only a small portion, if any. An investment advisor will be able to guide you properly based on a proper assessment.
PAGE: Five years ago really does seem like just yesterday! Some final words for us?
UMBER TANYA ANSARI: Be smart with your time. Don't let your cash sit idle - you will stand a net loser.
Many mutual funds allow you to begin investing with just Rs500. If you can spare this, start investing. Also, you should not think you need to invest all at once - try a systematic investment option where a portion of your savings, however much you are comfortable with, is invested regularly.
This will also help in equity fund investments as it will allow for averaging of your exposures and, if done well, will help you beat inflation! We have a strong market and the fundamentals are looking good - take advantage of it.
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|Publication:||Pakistan & Gulf Economist|
|Date:||Jun 26, 2016|
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