 My
son removed the soaked bean seeds very carefully from the bowl,
and planted them with enthusiasm deep inside the prepared pots of
soil. All night he
kept asking, “Mom, when will the baby plant peep out?”
Next morning I was dismayed to find him standing next to
the pot, seed in hand. “I
am checking out if the roots have begun to come out, Mom.
You told me that roots come out first and the plant comes
out next. See, there
is no root yet.” He
was obviously disappointed and I cajoled him to plant the seed
right back. When I returned to this column, which asked that I
write about mutual funds for investors, I could simply exchange
the image of my eager son, for the investor who asks every day
“Has the NAV gone up?”
To many of us,
investment is a plant that should grow to a time-table, so many
given inches a day. That
is the easy way to look at investments, and our experience with
fixed return products like bonds and deposits, makes us think that
if return is 10%, it means, on a day-on-day basis, it should go up
proportionately and reach that level of 10%.
That is like asking the bean plant to sprout a given number
of leaves every day. What
is not naturally seen in the phenomena around us cannot be seen in
investments either. Water them all day, but one shower will bring a glow
that you can never bring to your plants.
They will wither in the winter, get new leaves in spring,
and flower before summer.
Your most treasured mango tree cannot bear a fixed number
of fruits every day, so you can be sure you made the right
decision to plant it. So
are investments. Each
one of them has its uses, its needs, and its benefits.
And each one of them has its cycle to deliver the goodies.
Choose them with care, make sure your garden has variety, and
always trust an experienced ‘maali’ to water, control pests,
monitor and nurture. Mutual
funds are great investment ideas, only because they enable you to
create this wonderful garden for yourself.
They are not like Jack’s beanstalk, nor can they offer
the impossible plant that will sprout one leaf a day and bear one
fruit a month.
Just as my son
was not sure if the roots were indeed there, investors always
worry if their investments are well rooted and healthy.
Which is why it is important to be able to see what is
happening. That is why mutual funds tell you where they have been
investing, and tell you the value of your investment every day.
There would surely be phases that are good and bad, but
your mutual fund investment will not pretend that they did not
exist. Your NAV will
tell you what is happening, and the portfolio disclosures and fund
commentaries will tell you what is going well and what is going
wrong. A well planned
garden will still have to face up to storms, winds, and heat.
But you know what is happening all the same.
Transparency is the mutual fund’s biggest asset – there
is nothing in the investment that you do not know about.
With a mutual
fund you can choose what you want, from 1-day sprouts to 20-year
mango orchards. From
1-day liquid funds to 20-year equity funds.
Once you have made your choice, and understood what you can
expect to harvest, you have to but wait.
While you wait, all kinds of events will pass you by.
If you understand how they affect your garden and your
investment, and if you are sure your ‘maali’ and your mutual
fund manager are taking care, you can relax and wait for the
fruits to arrive. Are
you ready to throw away that ruler stick with which you measure
the growth of your plants every day?
You are ready for mutual funds, welcome aboard. |
