Risks Associated with Investing in Gulaq Gear-6
Since we went live with Gulaq portfolios in May 2020, we have learnt quite a few things about this business. Not that managing money was new to us, we have been managing money for HNIs and institutions for over 13 years now. But managing money for retail investors is altogether a different ballgame.
One of the most important lessons since the time we started Gulaq has been that performance is not enough. It is required but not sufficient. What is also important is that people trust you with their money.
To build that trust, the most important factor has been that we remain transparent and authentic in our communication with existing and potential customers.
That’s why even our customer care team does not have any sales target. Their mandate is just to help customers make better decisions. If that means suggesting them to buy index funds instead of Gulaq, we don’t shy away from doing that.
Hence today I want to cover a few points which I think are important for investors to understand before investing in Gulaq Gear-6 portfolios.
In this article, I am going to share the major risks associated with investing in our Gulaq Gear 6 portfolio, so that you can make the most informed decision with your money.
- Short-Term Investment Horizon – Gulaq Gear 6 allocation to equity is 100%. Equity over short run is highly unpredictable and risky. Over the long run, it is the best investment asset.
Hence just like any equity products, the best time frame for investment is greater than 3 years. If you have a short investment horizon, you would be better off investing in Gulaq Gear – 3/4 (which have some allocation to debt) or in short-term debt-based mutual funds.
- Portfolio Concentration – If you are already invested in Gulaq Gear 6 with more than 25% of your portfolio, you should avoid allocating more money to the fund. There have been times where customers have written to us that they hold 50% of their equity allocation in Gulaq Gear-6 and since this is the best performing fund in their portfolio, want to allocate 100% into it.
Diversification is the key to risk management and allocating more than 25% of your portfolio towards any fund can be very risky unless it’s an index fund like Nifty 50.
- Expectations of Consistent Outperformance – While Gulaq Gear-6 aims to outperform the benchmark index over the long term, it may underperform the index over the short run. Historically, our portfolio has underperformed the benchmark index for about 3-4 months in any given year. Investors should avoid the misconception that the portfolio will beat the index every single month. Patience and a long-term perspective are crucial. The benefits of our approach are only visible over a 2-3 year time frame, so avoid the temptation of constantly switching to the best performing fund and adopt a more patient and disciplined investment behaviour. We might not be the best performing funds in any given year, but consistent performance across 5 years will help us be in the top funds over that time frame..
- Expectations of huge returns as in the past 3 years – past 3 years have been unusual for equity markets. We launched at the lows of covid related market selloff and the markets have given huge returns from those lows. It is unreasonable to expect the kind of returns we have delivered in the last 3 years over the long run. Our expectations are that equity markets would give about 12-15% returns over long run and we hope to beat the markets by about 6% on an annualised basis, thereby achieving 18-21% returns. Experienced investors would know this is easier said than done.
- Retirement Planning – If you are a retiree with a substantial allocation to equities already, be cautious when considering an investment in Gulaq Gear-6.
Retirees can allocate a part of equity allocation to Gear-6 but not at the cost of being overexposed to equity. Consult your investment advisor or contact us for personalised advice to determine the appropriate allocation to Gulaq Gear-6.
Explore Gulaq Gear 6 smallcase by Estee Advisors here
Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Visit bit.ly/sc-wc for more disclosures.
