'Evaluate Risk Appetite Before Investing': LIC Mutual Fund's Marzban Irani To Young Investors

The investment paradigm has once again garnered attention in the recent past, thanks to the developments that came to pass in the Union Budget.

The Union budget brought to attention the aspect of investment in the financial market because of the rise of taxes on short-term and long-term investments.

Amidst these developments, the focus on the right kind of investment has also been sharpened. Life Insurance Corporation or LIC Mutual Fund's Chief Investment Officer – Fixed Income, Marzban Irani, spoke to the Free Press Journal.

In the interview, Irani took us through the investment avenues, crests and troughs of the paradigm.

1. As someone who has been an active investor for over 2 decades, how do you see the investment paradigm changing over these years?

In the last two decades, we have seen a lot of changes from the market perspective as well as a regulatory perspective. Markets have become more liquid. In early 2000 we were trading in g-sec in OTC market and settlement was physical.

Today we are trading, and we settle our g-sec trades on NDS OM (Negotiated Dealing System - Order Matching Segment). Very few corporate bonds were trading. Now most of the AAA-rated corporate bonds might have a price on a given day. However, the corporate bond market faces liquidity challenges on a tough day.

Regulators brought a lot of changes after the the 2008 financial crisis. In October 2017, the Securities & Exchange Board of India (SEBI) introduced categorisation and rationalisation norms which defined durations of debt schemes. Liquid fund’s investible universe was capped at bonds maturing in 91 Days.

Schemes’ names were aligned with the underlying scheme categories. In the last decade, we saw the introduction of risk o meter and Potential Risk Class Matrix (PRCM) to highlight the credit and duration risk to the investor. All this was done in the interest of retail investors, latest being reduction on face value of individual bond.

2. Is having a formal education in the discipline essential to being an investor, and therefore, does having a formal academic qualification in the field give you an added advantage?

Everything depends on the individual. On-the-job learning is the best way to learn. Having said that, studying CFA etc would have an added advantage.

3. How has the advent of advanced technology allowed more individuals to enter the frame?

Technology is playing a key role in the development of the debt market. As mentioned earlier, we have moved to NDS OM from the physical days. Similarly, RBI has allowed retail investors to buy government securities online.

Today, there are platforms (app based) where investors can buy/sell corporate bonds. However, a word of caution is that investors with the required knowledge should do this else take help from advisors.

4. Do people invest just for the sake of it, or is it slowly becoming a part of the social fabric?

Savings were always a big part of the Indian psyche. Gradually, with more disposal incomes, savings are gradually being channelled into capital markets. SIPs have become part of savers' DNA. The growing aspirations of middle class has a important role to play wherein the importance of savings in inculcated from a young age.

5. If so, how has this brought about a change in society and its outlook?

Two decades ago, money was going into real estate. As house prices have escalated a lot, investors are moving to financial assets. The mutual fund industry is benefitting from this.

6. Although, many from the younger generation and older generation alike are becoming a part of the ecosystem, is the urge for rapid results and quick money a bigger threat that could cause harm to the said ecosystem?

There is no quick money in mutual funds. People should invest based on their risk appetite and investment horizon. In fact, mutual funds are passed through vehicles and there is no guarantee of future returns.

7. Many, in the pursuit of quick success, invest in avenues, without really understanding the medium or, most importantly, understanding the risks involved in them. How do you look at this phenomenon?

As far as debt schemes are concerned, we have a process of SLR (safety, liquidity and returns). At the time of buying any paper, we follow the SLR process. All decisions are taken via the credit committee, the investment committee and the risk committee. Similarly, the Equity scheme follows its own approach towards Investments.

8. How do you place Mutual funds in the larger investment paradigm?

Mutual Funds will be an avenue of investment for investors as awareness increases. In the last decade, from May 2014 when the total AUM of Mutual Funds was 10 lakh crores, now in June 2024 has touched 61 lakh crores as per Amfi data. However I would like to mention that after indexation was removed, the inflows in debt reduced.

However, in the near future, more investors are expected to invest in to units of debt funds because of the strong macro-economic situation, inflation targeting the the central bank, inclusions in the global bond index and the possibility of an upgrade of our country’s credit rating.

9. Where do you see the future of this realm?

Industry has grown exponentially in the recent past and with saving getting channelized into more formal instruments like mutual funds, the growth is likely to stay.

10. What would your advice to investors, particularly the young guns, be?

I would tell youngsters to evaluate their risk appetite before investing. Today, a lot of data is available online. They should study the data. Before undertaking any investment, the risk associated with the asset class and the time horizon of the investment should be understood in detail.

In cases of doubt, it is advisable to get help from advisors. In the last few years, we have seen bullish markets. So, one can start with simple products such as index funds or exchange-traded funds (ETF), then may consider a move to mid-cap or small cap if risk appetite permits. Also, stay invested for a long.