Colours, Markets and your Investments!!

Just a day ahead of the festival of colours, we saw the different hues of markets sentiments. On 4^th March, 2015 history was made as the S&P BSE Sensex hit the 30,000 mark on the news of RBI surprise rate cut, but fell from the record high by around 600 points. A dramatic change of fortune from rising by close to 300 points at the start of the day to end about 200 points lower than the previous closing; the markets showed us their "true colours" or their volatile nature today.

Speaking of colours – they are an essence of markets, in the short term markets will rise (a nice bright green) and they will fall (a daunting red), the same is true for your mutual funds investments too.

We refer to the concept of Product Labeling - where colours define your risk in mutual fund investments.

Colours in investments, and where they come from

Assigning meaning to colours is an amazing way of instantly communicating a message. It simplifies tasks tremendously. Take the traffic lights on a busy 4-way intersection. The lights command vehicles either to stop, caution or get moving. Now, it’s another thing that on many busy streets in Mumbai it takes a cop waving arms over his head to manage the traffic flow, despite the signal.

Or rewind back to Friendship Day of school days. Different colours of the ribbons represented different feelings – varying from love, innocence, admiration to plain friendship. Roses too, are assigned meanings for their different colours.

Coming back to investments, mutual funds embraced the colour coding system in July 2013. If you’ve seen a mutual fund advertisement on the internet or on hoardings, there’s little chance you missed noticing the tiny, coloured box. SEBI introduced a framework on 'Product Labeling' for schemes, with colour coding back then, which would simplify the investor’s task of identifying a scheme.

Because, given the crazy schedules we all have today, what investor surfs the web and visit sites giving more information on past performance and history of a fund, the fund manager’s style of investing, portfolio construction etc. and then take an informed decision? SEBI recognized the fact that majority of investors don’t take all that trouble. Many would just take the word of the friend, colleague, uncle or the neighbourhood family-member-jaisa-financial-advisor, and invest where they recommend.

So came along the colour coding for mutual fund schemes, to help investors know what they were buying into, even in a passing.

What the colours convey

Based on SEBI’s prescription, a blue colour coded box indicates investment with principal at low risk, yellow signifies principal at medium risk, while brown represents principal is at high risk. Below is the list Quantum’s funds, one each from the three colour codes:

Name of the Scheme & Primary Benchmark	This product is suitable for investors who are seeking*	Risk-o-meter of Scheme
Quantum Long Term Equity Value Fund An Open Ended Equity Scheme following a Value Investment Strategy	• Long term capital appreciation • Invests primarily in equity and equity related securities of companies in S&P BSE 200 index.	Investors understand that their principal will be at Moderate Risk
Quantum Liquid Fund An Open Ended Liquid Scheme	• Income over the short term • Investments in debt / money market instruments.	Investors understand that their principal will be at Low Risk
Quantum Multi Asset Fund of Funds (An Open Ended Fund of Funds Scheme Investing in schemes of Quantum Mutual Fund)	• Long term capital appreciation and current income • Investments in portfolio of schemes of Quantum Mutual Fund whose underlying investments are in equity , debt / money market instruments and gold	Investors understand that their principal will be at Moderately High Risk<

(BLUE) investors understand that their principal will be at low risk

(YELLOW) investors understand that their principal will be at medium risk

(BROWN) investors understand that their principal will be at high risk

However we do not believe product labeling answers all the questions you need to ask about the funds you choose to invest. In particular the product label does not provide insight on qualitative aspects. For example, a large cap, a multi cap as well as a sectoral equity fund will all be colour-coded brown but the risks for each of these categories under the same equity asset class is different.

It tells you nothing about the scheme's past track record or its fund manager's ability to control risks or about portfolio churning. Yet it was a right step in the noble attempt to guide investors in choosing funds.

Don’t stay monochromatic, get colourful

We may have our favourites and often end up with the same shades in every purchase – the blues, green or white – to the irking of the family members. And this could well be the case with our investments as well. If you thought about the colours of your investments would you see only blue? Or are they only brown?

With clothes it’s just the matter of being labeled boring, but with investments the colours could determine whether you have a comfortable retirement or a compromised retirement. Whether the goals coming mid-way - child’s education, marriage etc – are met smoothly or you’d have to resort to borrowing.

So in order to have the right balance, we encourage you to outline your financial goals and select investments from equity, fixed income, gold etc in the appropriate proportion for your investments. In personal finance parlance this is called asset allocation.

This holi as you take a break from work, take some time off to ponder upon the nature of the market and analyze the colour of your investments. Bring on the hues so that your investments stay balanced. Do consult your financial advisor for guidance on personal investments suiting your requirements.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.

Above article is authored by Quantum.

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