We Do Not Just Preach, We Walk The Talk

If you are a regular reader of our blog articles, you would have realized a few common threads in them. Most of our articles revolve around, human traits like trust, honesty, and integrity. These are the three most important values by which we are driven. We strongly believe in these virtues. We cherish them to the core. In our articles, we always portray people having these traits with admiration, respect, and awe.

These are the must-have attributes of an investment advisor or a distributor. Investors hand over their hard-earned money to him with a lot of hope and trust. They believe that he will manage their investments with due honesty and propriety. This is a very huge responsibility. The interest of an investor must be the only objective of a distributor and nothing else. When the distributor’s motive conflicts with the benefit of investors then that is the downfall of moral character. One needs to be extremely careful about this.

These traits are rare. Not everyone can follow these in letter and spirit. But our defense background makes it easier for us to assimilate these traits as if they are in our blood. These are our first instinct. We are nonexistent without these values. It is what we live by.

However, we do not just believe in preaching. We walk the talk. Today, we will show you an example of how we do that.

To understand this perspective, let us get back to basics for those who are new to investing. Broadly there are three ways to invest in mutual funds:-

1. Systematic Investment Plan (SIP) which everyone is by now aware of

2. Investing the available amount in one go

3. Systematic Transfer Plan (STP) in which you transfer money periodically from a liquid fund (safest mutual fund option) to equity or other types of funds

When a distributor invests investors’ money in a mutual fund, he gets a predefined brokerage from the asset management company. This brokerage is higher for equity funds as compared to liquid funds.

So, when the investor has a surplus amount available for investment, just for the lure to get higher brokerage, a few distributors may suggest investing in equity schemes in one go rather than doing STP. Doing such a thing is personally more beneficial to the distributor.

However, our focus at “Defensive Investments” is always on identifying the existing risks, protecting the capital of the investor, and ensuring his well-being. We do not allow the investor to take an excessive risk at any cost. Hence, before suggesting any type of investment, we consider many factors like:-

1. Present domestic and international market situation

2. The short-term possibilities

3. The present market valuation and the index level

4. The general sentiments in the market about greed and fear

After thoroughly analyzing these factors, we suggest whether investing in one go is more beneficial or through STP. As such SIP has to continue irrespective of any situation.

We all know that the market dynamics in the past year have been very challenging. This is how the situation was evolving:-

1. The index levels had reached their peak

2. The valuation had become very expensive

3. The Ukraine war started unexpectedly

4. The interest rates were on the rise

5. People have become greedy

6. After this, the market corrected a lot

7. And now, it is in a consolidation phase

8. It is a completely uncertain situation

In such a situation, many of our clients wanted to invest surplus cash. Analyzing the above aspects critically, we have deployed every client’s money through the STP route and suggested they avoid investing in one go. Many of the clients are still sitting on cash in terms of liquid funds and their money is getting deployed every week systematically.

For example, in the past year, if we had suggested a client to invest Rs. 10 Lakh in one go, he would have been staring at a huge loss. However, rather than suggesting investment in one go, we have split this investment of Rs. 10 Lakh through STP over ten months for Rs. 1 Lakh per month.

Please understand the difference in the average cost of investing in both cases. In the first case, the amount invested will remain at Rs. 10 Lakh, but in the case of STP, the averaging will reduce the investment cost to less than Rs. 10 Lakh.

By doing this we have ensured three things:-

1. Reduced the risk

2. Protected the capital

3. Took advantage of rupee cost averaging

4. Ensured higher returns when the market will move up

So, in the days to come, when the market will move upwards, which eventually will, all these clients will get immensely benefitted. That is how we practice impeccable propriety and walk the talk.

Warren Buffet said, “Honesty is a very expensive gift. Do not expect it from cheap people”