Let’s Talk Mutual Funds: In Conversation with Monika Halan

Financial expert and widely respected journalist and book author, Monika Halan talks about investing in mutual funds and the pitfalls that investors should avoid

Ups and downs, highs and lows – they’re all part of life. That’s alright as long as one remembers to prepare for the lows when riding the highs. And financial prudence – proper financial planning – is an important part of that. If I have one deep regret in life, it’s the fact that I paid no attention at all to planning my financial future when I was young. In the early years of my career, I spent money like there was no tomorrow and made no effort to save anything, much less invest any of whatever little I earned.

While I started working in my early-20s, I only started thinking about saving and investing money when I was already in my mid-40s – a colossal mistake. But in any case, even if it was already very, very late, I did realise my mistake and set about rectifying the situation as best as I could. And for me, that was investing in mutual funds, which has since then provided me with some decent returns. I’ll never make up for those 20 years I lost – spending indiscriminately when I should have been saving and investing. But for whatever little it’s worth, I hope I’ve mended my ways for good and now there might perhaps be some hope for my financial future.

As part of investing in mutual funds, I read a fair bit on funds on what/where to invest. One of the books I read last year was Let’s Talk Mutual Funds, by Monika Halan, which I thought was quite useful. The bestselling author of Let’s Talk Money, Delhi-based Monika Halan is one of the most well-known, widely respected personal finance writers in India. With a Master’s in Economics from the Delhi School of Economics and a second Master’s in Journalism Studies from the University of Wales, UK, Monika has written for leading publications, including Mint, The Economic Times and The Indian Express, and was the Editor of Outlook Money. She has also run multiple TV shows focused on personal finance, on NDTV, Zee and Bloomberg India. A regular speaker on financial literacy, regulation, inclusion and consumer issues in retail finance, Monika is the Chairperson of SEBI Advisory Committee for Investor Protection and Education Fund, and is also a member of the Hybrid Securities Advisory Committee.

Over the last 10-15 years, mutual funds have become increasingly popular in India, with investors choosing these over gold, real estate and fixed deposits. Mutual funds offer liquidity, transparency, ease of entry/exit and, potentially, higher returns, especially for investors who are willing to be patient and who are committed to staying invested for at least 5-7 years or more. The one ‘problem,’ however, that mutual fund investors face is that of choice – there are simply too many funds to choose from. In India, more than 40 fund houses currently offer more than two thousand mutual fund schemes, across various different types and classes of funds. Understanding these choices and then choosing the right fund(s) can be a daunting task, especially for newer, inexperienced investors. And that’s where Monika’s book, Let’s Talk Mutual Funds, comes in. ‘In easy, simplified terms, Halan demystifies mutual funds and shows you how to make the most of them. From managing your cash flow and planning your children’s education to getting your own house and preparing for retirement, Let’s Talk Mutual Funds sets you on the path to achieving your financial goals. No tips. No tricks. Just a smart system to get mutual funds to work for you,’ says the publisher’s note.

I had an opportunity to do a brief interview with Monika where she spoke about the stock market, mutual funds, her book and investing in general. Here are some excerpts from the conversation.

What do your current roles, as Adjunct Professor at National Institute of Securities Markets (NISM) and Chairperson for the Advisory Committee for Investor Protection and Education Fund, SEBI, entail?

I love teaching and was with NISM for a year taking a course for post-graduate students on basics of mutual funds. I find that giving a one hour talk needs much lesser prep time than a one-hour lecture to students. I found myself spending six to eight hours prepping per hour of lecture time to teach mutual funds – a subject I thought I knew! I have to credit the work I did for the course that became the raw material for Let’s Talk Mutual Funds.

I took over as the Chairperson of the Advisory Committee for SEBI’s Investor Protection and Education Fund in 2022. The role is to oversee SEBI’s outreach on investor education and also think though issues in investor protection. There is an excellent team at SEBI that does the actual work, the committee’s role is directional. For example, the new calculators you see on SEBI arise from the directional inputs through the committee process.

Your earlier book, Let’s Talk Money, has been very successful and has received positive ratings everywhere. In some ways, is Let’s Talk Mutual Funds a natural extension of the first book? As compared with earlier generations, do you believe that people in India are now much more open to investing in the stock market? What would you attribute this increase in risk appetite to?

Let’s Talk Money is the first basic book that one needs to read before embarking on the money journey. I noticed that most people jump from risk-free products to investing in highly risky products. The recent story of FD investors jumping into crypto coins is the latest case in point. Across time there will be con jobs that will lure people into losing their money. My book is an extension of my philosophy of having a system for doing things that are repetitive in nature. We know that we will earn our entire active lives and therefore need a system, rather than a one-time decision, to make our money work for us. Let’s Talk Money gives you a basic primer of how to think about your money and in fact, in the book itself I give a hint of the next book! As I wrote the chapter on mutual funds in LTM, I realised that there was much more to say on this and it will need a full book to cover the topic. LTM gets you ready to invest. Let’s Talk Mutual Funds tells you how to use mutual funds to build your own portfolios.

India has moved from the government-controlled economy to inviting the private sector to do business without the draconian license Raj. The financial sector got freedom in 1991 and in the next two decades we saw a roll out of many products and services. When there were no options, it made sense to invest in land and gold and FDs, but once the vehicle meant for retail investors became viable, with a good regulatory structure with plenty of investor protection built into the DNA of the product, Indian investors need to learn how to use this new product category. My aim is to move people in a responsible, risk-aware manner from traditional forms of investing into using mutual funds that give access to equity, debt, gold and combinations of these asset classes in many ways.

There are a fair number of books available on investing in mutual funds. How, and in what ways, have you tried to keep your book different from those? What would you say are some unique highlights of Let’s Talk Mutual Funds, takeaways that prospective mutual fund investors may not find elsewhere?

There are many good books out there on mutual funds, but I think many of them are more of FAQs rather than a narrative or a system. I like systems and processes and have built this into Let’s Talk Mutual Funds. There are three errors that most people investing in mutual funds make. One, they think it is only an equity route; they do not realise that mutual funds are a route to equity, debt, gold and real estate, and combinations of these asset classes. Two, they get frozen with choice and fall into the trap of buying on tips. With over 1,000 schemes and thousands of options around those schemes, investors don’t know how to shortlist and choose schemes that work for their unique needs and tend to make errors in their selection. Three, investors tend to chase the highest return because they think that mutual funds are just a high return product.

Mutual funds are good not just for returns, but they are a way to have money available when you need it. For the short-term, there is more safety than high return in some debt categories. For medium terms needs, there is returns plus predictability in some hybrid categories of funds. For long-term needs, there is a whole range of equity funds to choose from. My book gives a system to cut down the choices, put filters of performance, cost and risk and then gives readers model portfolios to build their own unique set of funds.

Let’s Talk Murual Funds will give you a simple way to understand mutual funds. It will tell you that there are 37 categories of funds – 11 across equity, 16 across debt and others – and that you do not need all. Some of these categories contain very high-risk products, such as small cap funds or credit risk funds, and some are very safe – liquid funds, for example. I help you understand the features of the categories on both risk and return before telling you how to shortlist the ones that work for you. Next, I put in place a system to select schemes in each of the categories. And then we build portfolios with these schemes in proportions that reflect your goals, risk appetite and when you need the money. A car in the hands of a novice is dangerous for the driver and those on the road, but a skilled driver gets the best out of the car and the journey. Mutual funds are similar. If you use them without understanding them, you will harm your finances. Skillfully used, they are your partner for your entire money journey. And then after you, for your kids.

For retail investors looking for highest possible returns, are mutual funds always the best bet? Also, how safe is investing in mutual funds?

We have to move beyond targeting highest returns in our investments. Investing is about having the money available at future dates when you need it and during that process it needs to keep its head above inflation and taxes. When investors target the highest return, they take on too much risk and they usually invest in last year’s winners. I want investors to think about different kinds of risks when they set out to invest. The biggest risk is of not doing anything and just sitting on the side lines watching time go by. Time is money. Money needs time to multiply and the more people sit and stress over that perfect investment, they more they lose. There is no perfect anything permanently, perfection is an occasional friend. I tell my readers and viewers that don’t let perfect be the enemy of good.

Use mutual funds to build a portfolio that serves your needs for money now, in the middle term and over the long term. Don’t look at mutual funds just as a tool to harvest the highest return. Look at it like a tree that you can periodically harvest fruit from while allowing the tree to continue growing for future fruit.

I think the Indian mutual fund product has one of the most strict regulation in the world. A financial product that has investor interest in its DNA is sure to attract investors. Just the SIP book as in May 2023 is Rs 14,000 crore a month. This is retail money coming on its own into mainly equity. Nowhere else in the world do you see such investor behaviour. We need to credit both the regulator and the industry for getting this right.

Let’s Talk Mutual Funds is available on Amazon

You can visit Monika Halan’s website for more information about her work