US-64 investors will do well to weigh options at hand
Investors will do well to weigh options at hand before investments.
The other day, both my next-door neighbours, Mr Dalvi and Mr Singh, called on me. They had their redemptions of US-64 bonds coming up later this month, and were thinking about what exactly to do with the proceeds they would get.
They were also being asked by distributors of UTI and other mutual funds to invest funds in their schemes.
What not to do!
The easier task for me was to tell them upfront what not to do! After all, it is always easier to get swayed and make wrong decisions on the spur of the moment than to think, evaluate and take the correct one.
My first recommendation to them was to ignore the claims of the distributors coming knocking on their doors, and instead think of their situation and requirements.
After all, most fund distributors were being offered attractive commissions and other give-aways like cars and air tickets to encourage them to garner a large share of the Rs 8,000-crore US-64 pie. Thus, these distributors would be the last people to be able to provide a neutral and considered opinion in the long-term interest of the customer.
However, I advised Messrs Dalvi and Singh that there was no special benefit that would accrue to them by continuing with UTI. These schemes were at par with others in the mutual fund industry ��� and a few UTI schemes are known to be consistent top performers here.
Risk-averse senior citizen
I discovered that the two gentlemen had landed up with the same US-64 scheme, but with two very different situations and objectives in mind. In fact, this was true of US-64 investors in general ��� two completely different sets of investors who had ended up with the same scheme due to lack of options and information in the past.
The long-term investor
He had a 15-year career ahead and was looking to build a retirement corpus. I explained to him the superiority of equity for long-term investments of a duration of more than seven years. I suggested some options to think over (See second table).
Thus, the moral of the story, as oft-repeated, is to think through your financial situation before deciding on the next steps. The less you rely on the market and salesmen to influence your decision-making, the lower your chance of regretting your decision later.
Akhilesh Tilotia
(Park Financial Advisors)
They were also being asked by distributors of UTI and other mutual funds to invest funds in their schemes.
What not to do!
The easier task for me was to tell them upfront what not to do! After all, it is always easier to get swayed and make wrong decisions on the spur of the moment than to think, evaluate and take the correct one.
My first recommendation to them was to ignore the claims of the distributors coming knocking on their doors, and instead think of their situation and requirements.
After all, most fund distributors were being offered attractive commissions and other give-aways like cars and air tickets to encourage them to garner a large share of the Rs 8,000-crore US-64 pie. Thus, these distributors would be the last people to be able to provide a neutral and considered opinion in the long-term interest of the customer.
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UTI itself has schemes which they recommend customers to channelise their proceeds into. However, I advised Messrs Dalvi and Singh that there was no special benefit that would accrue to them by continuing with UTI. These schemes were at par with others in the mutual fund industry ��� and a few UTI schemes are known to be consistent top performers here.
Risk-averse senior citizen
I discovered that the two gentlemen had landed up with the same US-64 scheme, but with two very different situations and objectives in mind. In fact, this was true of US-64 investors in general ��� two completely different sets of investors who had ended up with the same scheme due to lack of options and information in the past.
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Mr Dalvi was a risk-averse senior citizen, who had been attracted by the 6.75% assured return and the tax-free nature of the bond. Thus, for him, any exposure to the risk of equity mutual funds was likely to be incorrect and possibly, even disastrous. I advised him to spread the proceeds between one or more of the options available (See first table).The long-term investor
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Mr Singh, on the other hand, was a long-term investor, with little knowledge of risk or return. He had been handed down the US-64 certificates from his father, and had simply continued with the bonds in 2003 due to lack of knowledge of other options.He had a 15-year career ahead and was looking to build a retirement corpus. I explained to him the superiority of equity for long-term investments of a duration of more than seven years. I suggested some options to think over (See second table).
Thus, the moral of the story, as oft-repeated, is to think through your financial situation before deciding on the next steps. The less you rely on the market and salesmen to influence your decision-making, the lower your chance of regretting your decision later.
Akhilesh Tilotia
(Park Financial Advisors)
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