The Hindu Business Line : Money Talk

Ashvin Arora is a Director at Optimix, a fund house that specialises in investment solutions that combine different mutual fund products to deliver a portfolio to investors.

A mechanical engineer from BITS Pilani (India) with an MBA from the University of New South Wales, Sydney, Australia, he is a professionally qualified business manager with 27 years of business and technical experience.

Which was your first investment; did you make money on it? Any learning from that experience?

I lived overseas for long before returning to India in 2005, so it is best that, for relevance, I should just condense the learning from my early investment experiences.

My first investments were in mutual funds because I had neither the knowledge nor the time to research different companies and be able to invest in stocks directly.

Fortunately, for me the market was doing well during those initial years, and I was able to earn good returns on my investments. This modest initial success catalysed my interest, and I started investing a small proportion of my savings directly in shares.

One of the first shares I purchased during an IPO grew by 300 per cent within two years, at which point I should have sold it and booked profits. However, based on my preference for the company I decided to hold the stock, and a few years later it lost 50 per cent of its peak value.

It was during these initial years that I learnt the very important lesson of not becoming emotionally involved with my investments.

What are your return expectations?

My ambition is to earn an average after tax return of 13-15 per cent on my diversified portfolio over three year periods.

When equity markets are in a bearish phase it may be difficult to achieve this return during a particular year, however when the markets are running up, the average return can be much higher. It is important not to become too greedy over the longer term, because this can lead to unrealistic expectations, costly mistakes and eventually disappointment.

Some experts believe that young investors can afford a 70-80 per cent exposure to equity. Do you share that view?

The view that young investors can afford a 70-80 percent exposure to equity is based on two assumptions. The first is that young investors can afford to have longer time horizons to their investments, as a result of which the risk is lower. It is well established that risk reduces as duration increases.

The second assumption is that these investors can actually tolerate more risk and, as a result, are less likely to panic if there is a loss.

I am not sure if this assumption is as universally applicable as some people like to think — it all depends on the understanding and acceptance of the risk young investors are taking, and if they have a sound investment strategy as opposed to speculation in one or two popular stocks.

It is important that they consult a financial planner or distributor who can professionally help them to construct their portfolio.

What would be your advice to investors who have missed out on the entire equity rally of the past five years? Can they still start now?

It is never too late to invest, and those who have missed the rally during the last five years, should view the recent fall in the equity market as a great opportunity to make long-term investments. It is only negative sentiment and panic which prevents investors from investing when the markets have fallen.

Finally, your advice on three things that budding youngsters should/should not do when they start off.

First, that money saved is money earned. Save at least 30 per cent of what you earn, if not more. Change your spending habits to achieve this outcome. Second, invest regularly, and do not try to time the market. Third, think long term, and do not speculate. Understand the difference between speculating for the short term and investing for the long term.

BL Research Bureau

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