`I promise my clients peace of mind'

Rasheeda Bhagat

HE never ever commits himself on the rate of return an investor should expect from the equity market.

``The maximum I tell my clients is that I will give you peace of mind; I will do the right thing and put your money in the right wealth-enhancing assets. But, ultimately, what happens is determined by Mr Market,'' says Mr Parag Parikh, Chairman of the Mumbai-based Parag Parikh Financial Advisory Services.

He believes that the returns from a person's investments in equity ``depend on how this stupid market works. One day this market is not willing to give you a share of Infosys for less than Rs 14,000; but another day it will give it to you at Rs 2,500. So, there is no rationale behind this market.''

With that being the case, the job of anybody in the investment service industry is to sensitivise the investor and steer him towards investment planning, he says.

Urging the investing community as well as the service industry to get the basic definition of investment right, Mr Parikh says that first an investor should have it clear in his/her mind ``why anybody invests or what the term investment stands for. When you are young, you have to save. You have to try and put your savings into the right wealth-enhancing assets so that in the future when your ability to earn diminishes or when you retire, you can fall back upon the investments you have made.''

Once this definition is understood, every individual would have to put an investment plan in place. ``You have an X amount of income and you have to decide what your goals are. You have two children who have to be educated, married, etc, and then you have to plan for all that.''

Depending on that plan, the investor would have to take one of the ``several investment vehicles'' available in the form of equity shares or mutual funds, debentures or debenture mutual funds, liquid funds, gold, real-estate, and so on.

It is in this background that an investor has to look at equity investment; ``because when you buy into equity, you are buying into a business which is able to grow and generate profits. By using this vehicle of investment, the investor gets twin benefits -- regular dividend to take care of his day-to-day needs and growth in the value of that investment.''

But Mr Parikh cautions equity investors to always take care to buy into value. ``The definition of a good investment is that you buy a good stock of a good business and then sit on it. You have to have patience because nothing happens very fast. So, my advice is buy value, sit on it and let time do the rest. That is what investment is all about.''

Also, advising investors to never ever use any vehicle of investment through borrowed money, he outlines the details of the strategy his company follows.

From 1996, his firm has a registered portfolio management scheme called `Cognito', with 85 clients under its umbrella. The minimum portfolio it manages has to be Rs 5 lakh, but there are also clients whose portfolio run to about Rs 1 crore. The annual fee is two per cent of the portfolio's quantum.

Though the individual client's portfolio is put up on the Net, ``we train them so that you do not have to look at your portfolio on a regular basis; once in six months, or a year will do. And every year, I tell them why we have done badly if that is the case, how we made the decisions and on what basis. I tell my clients that if you ask me to assure returns, I cannot; nobody can. If I could, I would not be in this business. But I can help you make the right investment decisions.''

He has an interesting response to the query of risk profile of different clients. ``Ultimately, there is only one right way of investing. People try to innovate in the financial market by saying: Okay you want this, so this is good for you. I do not believe in all that. Today, if there is one good investment option, it is good for all.''

On the performance of Cognito and whether the wealth of the clients had increased, Mr Parikh says that from 1996 to 1999, ``the growth was really good but it started going down after 2000 because of the market downturn. But I know that the companies we have bought into are intrinsically good. I can give peace of mind to my clients by telling them that the money they have given us will be invested in the right wealth-enhancing assets. I cannot guarantee returns. If I say I can, then I am lying and as a professional, I should not be doing that.''

Though he does not believe in the concept of ``portfolio churning'', of late, because of the volatility in the market, sometimes when ``we get some news, we have to act. The way the market is behaving, a small loss in the quarterly results can take the market down 50 per cent of the stock's value.''

But apart from that, he does not see any need to be ``alert or smart. What you need to be is wise; buy value and sit on it for long term.''

Mr Parikh adds that the advisory does have some clients who want to invest only in mutual funds. ``For these clients, we have a product called Progeny. Today, mutual fund investing has become very complex because when you invest in a mutual fund you have to see who is the fund manager and what is its portfolio.''