Investing in a single financial instrument is risky, as stated by Mukesh Kochar. Many new-age investors have not experienced a downturn in the equity market. Kochar emphasizes the importance of proper diversification within a portfolio, noting that both over-diversification and under-diversification can be detrimental. Reasonable diversification is crucial, according to Kochar, who serves as the National Head of Wealth at AUM Capital.
In an interview, Kochar advised against investing solely in one financial instrument or similar types of instruments since such a strategy can lead to significant risks. For new-age investors, particularly those who entered the market post-COVID and have witnessed low volatility along with a market rally, it is important to understand that markets are cyclical, with both bull and bear phases. Kochar recommends long-term investment in the equity market, maintaining proper asset allocation tailored to specific investment goals. He also advises investing regularly and leveraging market dips, cautioning against the pursuit of quick gains, which could lead to capital erosion. Avoiding penny stocks and focusing on the long-term perspective is important.
When portfolios fall short of investment goals, Kochar suggests that typically, investors tend to invest more during market highs and withdraw or remain passive during lows, which can be counterproductive. Starting investments late with expectations of quick, high returns is a common mistake. A better strategy involves investing more during market downturns and practicing patience and regular investment to benefit from bull markets, taking advantage of compounding effects.
Common mistakes that prevent individuals from meeting their financial objectives include a lack of diversification across different asset classes and inadequate knowledge about market conditions. Not starting early with retirement planning is another oversight. Early investments, such as creating Public Provident Fund (PPF) accounts and utilizing Systematic Investment Plans (SIPs), can help build a larger retirement corpus.
To stay informed on financial policies and tax regulations, Kochar recommends regularly reading financial news through digital apps and consulting financial advisors when needed. Regarding the focus on earnings versus asset allocation, he believes that prudent asset allocation based on various factors like tenure, risk-return expectations, and market conditions is essential. The goal should be focused on the allocation process rather than simply on earnings.
The involvement of younger individuals in managing their portfolios has grown, facilitated by technological advancements and online investment platforms. The COVID-19 pandemic brought new investors to the market, with many experiencing earnings for the first time through market downturns and recoveries. Kochar sees a promising future for wealth management, combining human expertise with digital capabilities. The sector has seen a significant digital transformation post-COVID, with wealth managers enhancing their efficiency through a platform-oriented approach, personalized assistance, and customized investment strategies, all while maintaining the critical client-advisor relationship.
Analyst comment
Positive news: Mukesh Kochar advises on the importance of diversification in financial instrument investments, long-term investment in the equity market, and avoiding common mistakes. He sees a promising future for wealth management with the integration of technology and personalized assistance. The market is likely to see increased focus on proper diversification and tailored investment strategies.
