LIC Mutual Fund’s Marzban Irani advises the youth of the country to first assess the risk appetite involved and then only invest in mutual funds.
Thanks to the changes that occurred with the Union Budget, the investment paradigm has recently attracted attention once more.
The Union budget raised awareness of the financial market investment component by increasing taxes on both short- and long-term investments.
The emphasis on making the correct sort of investment has also become more acute in the middle of these changes. Chief Investment Officer for Fixed Income at Life Insurance Corporation, or LIC Mutual Fund, Marzban Irani, speaks to the Free Press Journal.
Irani, in an interview.
Irani walked us through the paradigm’s investing opportunities and ups and downs during the conversation.
1. With more than 20 years of experience as an active investor, how do you envision the investing paradigm evolving over time?
Irani: There have been several developments over the past 20 years, both in terms of regulations and the market. Market liquidity has increased.
We traded in the g-sec on the OTC market in the early 2000s, and physical settlement was used. We settle our G-sec deals on NDS OM (Negotiated Dealing System—Order Matching Segment) as we trade today.
There weren’t many business bonds to trade. Presently, the majority of corporate bonds with AAA ratings may have a price on any given day. On a bad day, though, the corporate marketplace for bonds has liquidity issues.
Many adjustments were implemented by regulators following the financial crisis of 2008. The Securities and Exchange Board of India (SEBI) issued categorization and rationalization guidelines in October 2017, defining the terms of loan programs.
A maximum of bonds with 91-day maturities were allowed to be invested in liquid funds.
The titles of the schemes matched the underlying categories of the schemes. To emphasize the credit and endurance risk to the investor, the risk gauge and Potential Risk Class Matrix (PRCM) were introduced in the previous 10 years. The most recent action, a decrease in the face value of each individual bond, was made with retail investors’ best interests in mind.
2. Are formal academic credentials in the subject advantageous since they are a prerequisite for becoming an investor, or is there another way to become an investor without one?
Irani: If you ask me, I would say that everything is dependent on the person itself. The best way to learn is through on-the-job training. That being said, there would be a benefit to learning CFA, etc.
3. How has the introduction of sophisticated technology made it possible for more people to be included?
Irani: Technology is essential to the growth of the debt market. As previously said, we have transitioned from the physical days to NDS OM. In the same vein, the RBI permits online purchases of government assets by regular investors.
Also, Investors may now purchase and sell corporate bonds using app-based platforms. A word of caution: if an investor lacks the necessary understanding, they should seek advice from consultants instead of doing this themselves.
4. Do individuals invest only for financial gain, or is it gradually ingrained in society?
Irani: The Indian mentality has long placed a high value on savings. Savings are progressively flowing into capital markets as disposable income increases. SIPs are now ingrained in savers.
A major factor in the expanding ambitions of the middle class is the early inculcation of the value of saving money.
5. If so, in what ways has this altered society’s perspective?
Irani: Real estate was the source of capital twenty years ago. Investors are shifting to financial assets as a result of the sharp increase in housing prices. This is advantageous to the mutual fund business.
6. Is the need for quick money and results a greater danger to the ecosystem than the fact that many people from both younger and older generations are joining it?
Irani: Mutual funds don’t provide easy money. Investors ought to make decisions based on their time horizon and risk tolerance. Mutual funds are really passed through vehicles, and future returns are not guaranteed.
7. Many people engage in avenues without fully knowing the medium or, more crucially, the risks inherent with them in their quest for rapid success. What angle do you take on this phenomenon?
Irani: Regarding debt schemes, we have the SLR (safety, liquidity, and returns) approach. We adhere to the SLR method while purchasing any paper. The credit committee, investment committee, and risk committee make all of the decisions. In a similar vein, the equity program has its own methodology for investments.
8. According to you, what role do mutual funds play in the bigger picture of investing?
Irani: As knowledge grows, investors will have access to mutual funds as a means of investment. According to Amfi statistics, the total AUM of mutual funds has increased over the past ten years, from May 2014, when it was 10 lakh crores, to June 2024, when it reached 61 lakh crores.
Nonetheless, I should point out that there was a decrease in debt inflows following the removal of indexation. However, given the robust macroeconomic environment, the central bank’s inflation objective, the country’s membership in the global bond index, and the potential for credit rating upgrades, more investors are anticipated to purchase debt fund units in the near future.
9. Regarding this domain, where do you see it going in the future?
Irani: As we all can see, the industry has expanded rapidly in recent years, and this expansion is expected to continue as savings are being directed toward more formal products like mutual funds.
10. What guidance would you provide to investors, especially the up-and-coming ones?
Irani: I would advise young people to consider their risk tolerance before making an investment. Lots and lots of information is there on the Internet these days, so make use of it for more profit. They ought to examine the information.
Prior to making any investments, it is important to fully understand the risk involved in the asset class and the investment’s time horizon.
When in doubt, consulting an adviser is a good idea. The markets have been optimistic during the past few years. Thus, if risk tolerance allows, one may begin with low-risk products like index funds or exchange-traded funds (ETF) before moving on to mid-cap or small-cap stocks. Stay involved for a long time as well.
