5 traits of a good equity product

Five important traits of a product to be successful in the long run : (a) Relevance (across market cycles), (b) Genuine differentiation (in terms of Risk-Return-Liquidity matrix), (c) Viability for all stakeholders, (d) Structure that is efficient and (e) Fund house’s ability to add value No product is right or wrong, but there is an important factor of suitability, which must be highlighted Capital Protection funds in the prevalent form, ignore the time value of money, and lead investors to look at only the dictionary meaning of capital protection, not economic. In order to serve investors better, fund houses must be able to create solutions for advisors that help them in client engagement and product selection Complexity in product structure cannot be a sales proposition in itself, and should be strictly seen as a means to achieve an end

 Are there any international best practices from a product construct point of view that we should embrace, which guide retail investors to appropriate products?

Himanshu: Longevity and vintage of successful products is a good indicator of what should be observed while constructing a product. The central idea is that the product should work for every stakeholder for it to succeed in the long run. This is a necessary though not a sufficient condition. One can identify at least five important traits of a product to be successful in the long run –

(a) Relevance (across market cycles),

(b) Genuine differentiation (in terms of Risk-Return-Liquidity matrix),

(c) Viability for all stakeholders,

(d) Structure that is efficient and

(e) Fund house’s ability to add value

This may not be an exhaustive checklist, but most of the international best practices factor these aspects in one way or the other.

But it should not be interpreted as a general “solution” product for the retail investors.

Diversification is not just about buying more, but about buying different. There are following aspects of diversification that can be achieved through international investing

1. Diversification by Asset Class

2. Diversification by Businesses

3. Diversification by Countries

4. And Diversification by Currencies

Unfortunately it is viewed tactically in the times of currency volatility and global risk aversion only. It is high time that our advisors present offshore equity products as meaningful diversifiers to the Indian investors. It should become an integral part of any long term asset allocation.